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 March 31, 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 May 12, 1995
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 3
Consolidated Statements of Income -
For the Quarter Ended
March 31, 1995 and March 31, 1994 4
Consolidated Statements of Cash Flows -
For the Three Months Ended
March 31, 1995 and March 31, 1994 5
Notes to the Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
(unaudited)
March 31, December 31,
1995 1994
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 55,355 $ 56,304
Interest bearing deposits in other
banks 1,518 577
Federal funds sold and securities
purchased under agreements to
resell 49,400 43,670
Total cash and cash equivalents 106,273 100,551
Investment securities:
Available for sale 75,168 72,466
Held to maturity 119,811 120,477
Loans 550,944 544,566
Less: Allowance for loan losses (9,031) (8,889)
Unearned income (11,833) (11,376)
Loans, net 530,080 524,301
Bank premises and equipment 20,288 20,588
Interest receivable 6,403 6,778
Other assets 6,603 6,542
TOTAL ASSETS $ 864,626 $ 851,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 106,105 $ 104,615
Interest bearing 613,202 592,762
Total deposits 719,307 697,377
Other borrowed funds 36,923 47,710
Dividends payable 1,276 1,276
Interest payable 1,952 1,715
Other liabilities 4,130 3,561
Total liabilities 763,588 751,639
SHAREHOLDERS' EQUITY
Common stock par value $0.25 per share
4,804,000 shares authorized; 3,866,382
shares issued and outstanding at
March 31, 1995 and December 31, 1994 967 967
Capital surplus 9,094 9,094
Retained earnings 91,593 90,524
Unrealized net loss on securities
available for sale (616) (521)
Total shareholders' equity 101,038 100,064
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $ 864,626 $ 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)
Quarter Ended
March 31,
1995 1994
INTEREST INCOME
Interest and fees on loans $ 12,891 $ 10,815
Interest on investment securities:
Taxable 1,790 1,506
Nontaxable 562 541
Interest on deposits in other banks 29 23
Interest on federal funds sold and
securities purchased under
agreements to resell 876 469
Total interest income 16,148 13,354
INTEREST EXPENSE
Interest on deposits 6,063 4,767
Interest on other borrowed funds 521 268
Total interest expense 6,584 5,035
Net interest income 9,564 8,319
Provision for loan losses 713 646
Net interest income after provision
for loan losses 8,851 7,673
NONINTEREST INCOME
Service charges and fees 1,091 941
Trust income 177 225
Investment losses, net (39)
Other 1,294 1,368
Total noninterest income 2,562 2,495
NONINTEREST INCOME
Salaries and employee benefits 4,084 3,772
Occupancy expenses, net 556 506
Equipment expenses 695 656
Bank shares tax 297 260
Deposit insurance expense 396 375
Other 2,029 1,932
Total noninterest expense 8,057 7,501
Income before income taxes 3,356 2,667
Income tax expense 1,011 798
NET INCOME $ 2,345 $ 1,869
Per common share:
Net income $ 0.61 $ 0.48
Dividends declared $ 0.33 $ 0.30
Weighted average shares outstanding 3,866 3,866
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands except per share data)
(unaudited)
Three Months Ended
March 31,
1995 1994
Cash flows from operating activities
Net income $ 2,345 $ 1,869
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 668 663
Net amortization of investment securities
premiums and discounts:
Available for sale (205) 112
Held to maturity 75 79
Provision for loan losses 713 646
Deferred income tax 1 (18)
Gain on sale of fixed assets (1)
Loss (gain) on sale of securities:
Available for sale 41
Held to maturity (2)
Changes in:
Interest receivable 375 527
Other assets (150) (187)
Interest payable 237 (67)
Other liabilities 569 268
Net cash provided by operating activities 4,627 3,931
Cash flows from investing activities
Proceeds from maturity of investment securities:
Available for sale 30,587 11,159
Held to maturity 13,553 16,941
Proceeds from sale of available for sale
investment securities 8,182
Purchase of investment securities:
Available for sale (33,229) (8,524)
Held to maturity (12,962) (17,677)
Net increase in loans (6,492) (16,101)
Purchase of bank premises and equipment (229) (296)
Proceeds from sale of equipment 4
Net cash used in investing activities (8,772) (6,312)
Cash flows from financing activities
Net increase in deposits 21,930 23,760
Dividends paid (1,276) (1,160)
Net decrease in other borrowed funds (10,787) (177)
Net cash provided by financing activities 9,867 22,423
Net change in cash and cash equivalents 5,722 20,042
Cash and cash equivalents at beginning of year 100,551 97,784
Cash and cash equivalents at end of period $ 106,273 $ 117,826
Supplemental disclosures:
Cash paid during the year for:
Interest $ 6,347 $ 5,102
Income taxes None 80
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, adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation, have been included. Operating results for the period ended
March 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended December 31,
1994.
NOTE 2 - EFFECT OF IMPLEMENTING SFAS NO. 114
On January 1, 1995, the Company implemented Statement of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a
Loan". SFAS 114 addresses the following:
1. The accounting by creditors for impairment of a loan.
2. The accounting by creditors for loans that are restructured in a
troubled debt restructuring involving a modification of terms of a
receivable.
3. The elimination of the categories of loans classified as in-substance
foreclosures.
SFAS 114 requires the measurement of impaired loans based on the present
value of expected future cash flows using the loan's effective interest rate
or, as a practical expedient, it may be measured on the fair market value of
the loan if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment, an impairment will be recognized
by creating a valuation allowance with a corresponding charge to the
provision for loan losses. SFAS 114 does not apply to large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment.
The Company collectively reviews consumer, real estate, and commercial
purpose loans with balances less than $500 thousand for impairment. A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. If the impaired loan(s) is
active, payments made are applied to both principal and interest. If the
impaired loan(s) is in nonaccrual status, payments are used to reduce
principal balances. The adoption of SFAS 114 did not result in additional
provisions for loan losses or changes in previously reported net earnings due
to the fact that the Company's existing methods of measuring loan impairment
is consistent with the methods prescribed by the Statement.
SFAS 114 also eliminated the categories of loans classified as in-substance
foreclosures, which resulted in the reclassification of such amounts and
related specific allowances for possible losses from other real estate owned
to loan receivables and related provisions for losses from operations of
other real estate to provision for loan losses. Upon adoption, the Company
transferred approximately $107 thousand from the category of in-substance
foreclosure to loan receivables.
On March 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with the Statement totaled $7.1 million and the
total allowance related to such loans was $2.3 million. The recorded
investment averaged $7.1 million for the first quarter of 1995. The amount
of interest earned on these loans during the first quarter of 1995 was $119
thousand. If the Company had used a cash-basis method of accounting for the
interest on these loans, the interest earned would have been $123 thousand for
the first quarter of 1995.
An analysis of the allowance for loan losses follows:
Quarter Ended Year Ended
March 31, 1995 December 31,
1994
Regular SFAS 114 Total Regular
(In thousands) Allowance Allowance Allowance Allowance
Balance, beginning
of period $ 8,889 $ None $ 8,889 $ 8,547
Provisions for loan
losses 713 713 2,125
Recoveries 172 172 841
Loans charged off (743) (743) (2,624)
Amount transferred to
SFAS 114 Allowance (2,303) (2,303)
Amount transferred
from Regular Allowance 2,303 2,303
Balance, end of period $ 6,728 $ 2,303 $ 9,301 $ 8,889
NOTE 3 - EFFECT OF IMPLEMENTING SFAS 116
In June 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 116 "Accounting for Contributions Received and Contributions Made."
This statement requires that contributions made, including unconditional
promises to give, be recognized as expenses in the period made at their fair
values. This statement is effective for fiscal years beginning after
December 15, 1994. The Company implemented this statement on January 1, 1995
with no impact on the financial statements.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
First Quarter 1995 vs. First Quarter 1994
The Company reported earnings of $2.3 million, or $.61 per share, for the
first quarter of 1995 compared to earnings of $1.9 million, or $.48 per share
for the first quarter of 1994.
Return on average assets was 1.10% for the first quarter of 1995, an increase
from .91% reported for the same period of 1994. Return on average equity was
9.50% for the first quarter of 1995, an increase from 7.88% during the same
period of 1994.
STATEMENT OF INCOME REVIEW
Net Interest Income
Net interest income totaled $9.6 million, compared to $8.3 million for first
quarter 1994. The net interest margin (net interest income as a percentage of
average earning assets), increased to 5.15% during the first quarter of 1995
compared to 4.81% in the first quarter of 1994. The spread between rates
earned and paid increased to 4.44% compared to 4.26% in the first quarter of
1994.
Asset Quality
The provision for loans losses increased $67 thousand compared to the first
quarter 1994. The Company had net charge-offs of $570 thousand in the first
quarter of 1995 compared to net charge-offs of $480 thousand in the same
period of 1994. The allowance for loan losses was 1.65% of net loans in the
first quarter of 1995, a small increase from 1.64% in the first quarter of
1994. Management feels the current reserve is adequate to cover any
potential future losses within the loan portfolio. Management also continues
to emphasize collection efforts and evaluation of risks within the portfolio.
Noninterest Income
Noninterest income of $2.6 million increased $67 thousand, or 2.7% from the
first quarter of 1994. Service charges on deposits increased $150 thousand,
or 15.9% to $1.1 million. Trust fees decreased $48 thousand, or 21.3% to
$177 thousand. The Company had no gains or losses on investment securities
during the first quarter of 1995 compared to a net loss of $39 thousand in
the same period of 1994.
Noninterest Expense
Total noninterest expenses increased $556 thousand or 7.4% from the first
quarter of 1994 to $8.1 million. Salaries and benefits, the largest
component of noninterest expense, increased $312 thousand, or 8.3%.
Occupancy expense, net of rental income, increased $50 thousand, or 9.9%.
Equipment expense increased $39 thousand, or 5.9%. Taxes on bank shares
increased $37 thousand, or 14.2%. FDIC insurance expense increased $21
thousand, or 5.6%.
Income taxes
Income tax expense increased $213 thousand, or 26.7% from the first quarter of
1994 to $1.0 million. The change in income tax expense is attributable to
the increase in income before taxes of $689 thousand, or 25.8%. The 1995
effective tax rate was 30%, unchanged from 1994.
BALANCE SHEET REVIEW
Total assets were $865 million on March 31, 1995, an increase of $13 million,
or 1.5% from December 31, 1994. Assets averaged $864 million for the first
quarter of 1995, an increase of $25 million, or 2.9% from year end 1994.
Loans
Loans, net of unearned income, increased $5.9 million, or 1.1% from December
31, 1994 to $539 million. The loan growth can be primarily attributed to the
Company's commercial leasing subsidiary, as well as the continued growth in
the consumer loan market. On average, loans represented 69.5% of earning
assets compared to 68.7% for 1994.
Temporary Investments
Federal funds sold and securities purchased under agreements to resell
averaged $63 million, an increase of $7 million, or 13.1% from year end 1994.
Investment Securities
Investment securities were $195 million on March 31, 1995, an increase of $2
million, or 1.1% from year end 1994. Available for sale and held to maturity
securities were $75 and $120 million, respectively. Investment securities
averaged $171 million for the first quarter 1995, an decrease of $6 million,
or 3.5% from year end 1994. Net unrealized losses after tax on securities
available for sale were $616 thousand on March 31, 1995, as compared to $521
thousand on December 31, 1994.
Nonperforming assets
Other real estate owned decreased $192 thousand, or 50.5% from year end 1994
to $188 thousand on March 31, 1995. Nonperforming assets totaled $8.9 million
on March 31, 1995, relatively unchanged from year end 1994. Nonperforming
assets to total equity remained unchanged from year end 1994 at 8.8%.
Nonperforming assets as a percentage of loans and other real estate also
remained unchanged from year end 1994 at 1.7%. The Company's loan policy
includes strict guidelines for approving and monitoring loans. This along with
management's efforts to improve the quality of the loan portfolio should
decrease the Company's nonperforming assets in future years.
Deposits
Total deposits increased $22 million, or 3.1%, from year end 1994 to $719
million. Deposits averaged $721 million, an increase of $21 million, or 2.9%
from year end 1994. The increase can be primarily attributed to the
Commonwealth of Kentucky's deposit account. 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 account is subject to extreme fluctuations
due to the unpredictability of their deposits and withdrawals.
Borrowed Funds
Borrowed funds totaled $37 million, a decrease of $11 million, or 22.9% from
year end 1994. Borrowed funds averaged $33 million, a decrease of $3 million,
or 8.3%.
Shareholders' Equity
Shareholders' equity was $101 million on March 31, 1995, increasing $974
thousand from year end 1994. Dividends of $1.3 million were declared during
the first quarter of 1995. The Company's capital ratios as of March 31, 1995
and the regulatory minimums are as follows:
Farmers Capital Regulatory
Bank Corporation Minimum
Tier 1 risk based 16.77% 4.00%
Total risk based 18.02% 8.00%
Leverage 11.42% 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
March 31, 1995.
Accounting Requirements
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 114 (SFAS 114), "Accounting by
Creditors for Impairment of a Loan". SFAS 114 addresses the following:
1. The accounting by creditors for impairment of a loan.
2. The accounting by creditors for loans that are restructured in a troubled
debt restructuring involving a modification of terms of a receivable.
3. The elimination of the categories of loans classified as in-substance
foreclosures.
SFAS 114 requires the measurement of impaired loans based on the present
value of expected future cash flows using the loan's effective interest rate
or, as a practical expedient, it may be measured on the fair market value of
the loan if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment, an impairment will be recognized
by creating a valuation allowance with a corresponding charge to the provision
for loan losses.
The Statement was implemented in the first quarter of 1995.
In June 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 116, "Accounting for Contributions Received and Contributions Made."
This statement requires that contributions made, including unconditional
promises to give, be recognized as expenses in the period made at their fair
values. This statement is effective for fiscal years beginning after
December 15, 1994. The Company implemented this statement on January 1, 1995
with no impact on the financial statements.
Liquidity
The liquidity of the Company is dependent on the receipt of dividends from
its subsidiary banks. Management expects that in the aggregate its
subsidiary banks will continue to have the ability to dividend adequate funds
to the 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 05-15-95 Charles S. Boyd
Charles Scott Boyd,
President and CEO (Principal Executive Officer)
Date: 05-15-95 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 March 31,
1995 financial statements and is qualified in its entirety by reference to such
financial statements.
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