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, 1996
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 (I.R.S. Employer Identification Number)
of 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
3,798,982 shares outstanding at November 7, 1996
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income -
For the Three Months and Nine Months Ended
September 30, 1996 and September 30, 1995 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended
September 30, 1996 and September 30, 1995 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
Item 6 - Exhibits and Reports on Form 8-K 12
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share figures)
(unaudited)
September 30, 1996 December 31, 1995
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 95,272 $ 41,126
Interest bearing deposits in other banks 1,279 688
Federal funds sold and securities purchased
under agreements to resell 21,235 68,370
Total cash and cash equivalents 117,786 110,184
Investment securities:
Available for sale 121,560 105,933
Held to maturity 108,751 120,991
Loans 558,724 554,942
Less: Allowance for loan losses (8,486) (8,472)
Unearned income (9,061) (11,762)
Loans, net 541,177 534,708
Bank premises and equipment 19,458 19,916
Interest receivable 7,985 7,889
Other assets 5,079 6,492
TOTAL ASSETS $ 921,796 $ 906,113
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 139,190 $ 109,490
Interest bearing 630,125 645,371
Total deposits 769,315 754,861
Other borrowed funds 35,485 38,524
Dividends payable 1,381 1,392
Interest payable 2,212 2,370
Other liabilities 5,249 4,037
Total liabilities 813,642 801,184
SHAREHOLDERS' EQUITY
Common stock par value $0.25 per share
4,804,000 shares authorized;
3,798,982 and 3,866,382 shares issued
and outstanding at September 30,
1996 and December 31, 1995, respectively 950 967
Capital surplus 8,936 9,094
Retained earnings 98,835 95,694
Unrealized net loss on
securities available for sale (567) (826)
Total shareholders' equity 108,154 104,929
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 921,796 $ 906,113
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,
1996 1995 1996 1995
INTEREST INCOME
Interest and fees on loans $ 12,971 $ 13,742 $ 39,615 $ 39,944
Interest on investment securities:
Taxable 2,332 2,020 6,885 5,822
Nontaxable 723 578 2,111 1,698
Interest on federal funds sold
and securities purchased under
agreements to resell 699 632 2,112 2,251
Total interest income 16,725 16,972 50,723 49,715
INTEREST EXPENSE
Interest on deposits 6,759 6,745 20,423 19,304
Interest on other borrowed funds 375 417 1,145 1,430
Total interest expense 7,134 7,162 21,568 20,734
Net interest income 9,591 9,810 29,155 28,981
Provision for loan losses 468 945 3,557 2,706
Net interest income after
provision for loan losses 9,123 8,865 25,598 26,275
NONINTEREST INCOME
Service charges and fees 1,472 1,510 4,253 3,930
Trust income 279 307 708 761
Investment gains, net 10 1
Gain (loss) on sale of loans (11) 3,220
Other 1,214 1,156 3,508 3,953
Total noninterest income 2,954 2,973 11,699 8,645
NONINTEREST EXPENSE
Salaries and employee benefits 4,165 4,278 12,661 12,430
Occupancy expenses, net 480 474 1,523 1,634
Equipment expenses 595 630 1,899 1,971
Bank shares tax 241 223 762 795
FDIC insurance 4 (42) 10 751
Other 2,158 2,129 6,401 6,731
Total noninterest expense 7,643 7,692 23,256 24,312
Income before income taxes 4,434 4,146 14,041 10,608
Income tax expense 1,297 1,272 4,260 3,203
NET INCOME $ 3,137 $ 2,874 $ 9,781 $ 7,405
Per common share:
Net income $ 0.82 $ 0.74 $ 2.54 $ 1.92
Dividends declared $ 0.36 $ 0.33 $ 1.08 $ 0.99
Weighted average shares
outstanding 3,836 3,866 3,856 3,866
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(unaudited)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities
Net income $ 9,781 $ 7,405
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,840 1,993
Net amortization of investment securities
premiums and discounts:
Available for sale (365) (657)
Held to maturity 88 188
Provision for loan losses 3,557 2,706
Loss on sale of fixed assets 8 2
Gain on sale of loans (3,220)
Gain on call of investment security:
Held to maturity (10) (1)
Changes in:
Interest receivable (96) (1,101)
Other assets 878 (410)
Interest payable (158) 563
Other liabilities 1,212 1,350
Net cash provided by operating activities 13,515 12,038
Cash flows from investing activities
Proceeds from maturity or call of
investment securities:
Available for sale 99,724 62,150
Held to maturity 36,471 40,240
Purchase of investment securities:
Available for sale (114,594) (75,318)
Held to maturity (24,309) (35,029)
Net increase in loans (22,319) (14,631)
Purchase of bank premises and equipment (1,168) (947)
Proceeds from sale of equipment 180 1
Proceeds from sale of loans 15,513
Net cash used in investing activities (10,502) (23,534)
Cash flows from financing activities
Net increase in deposits 14,454 66,886
Dividends paid (4,176) (3,828)
Purchase of treasury stock (2,650)
Net decrease in other borrowed funds (3,039) (23,204)
Net cash provided by financing activities 4,589 39,854
Net change in cash and cash equivalents 7,602 28,358
Cash and cash equivalents at beginning of year 110,184 100,551
Cash and cash equivalents at end of period $ 117,786 $ 128,909
Supplemental disclosures
Cash paid during the year for
Interest $ 21,726 $ 20,171
Income taxes 2,835 2,266
Cash dividend declared and unpaid 1,381 1,276
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, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996. 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, 1995.
NOTE 2 - RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements of prior periods to conform to the current period presentation.
These reclassifications do not affect net income or shareholders' equity as
previously reported.
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Third Quarter 1996 vs. Third Quarter 1995
The Company reported earnings of $3.1 million, or $0.82 per share, for the
third quarter of 1996 compared to $2.9 million, or $0.74 per share one year
ago. The increase is due primarily to a decrease in provision for loan losses.
Return on average assets and return on average equity for the third quarter
of 1996 were 1.40% and 11.67%, respectively, compared to 1.34% and 11.21% for
the same period in 1995.
Net Interest Income
Net interest income totaled $9.6 million, compared to $9.8 million for the
third quarter of 1995. The net interest margin (net interest income as a
percentage of average earning assets), decreased to 4.89% compared to 5.25%
for 1995. Likewise the spread between rates earned and paid decreased from
4.51% to 4.13%. The decrease is primarily due to the sale of approximately
$12 million in high interest rate consumer loans in the second quarter.
Asset Quality
The provision for loan losses decreased $477 thousand compared to the third
quarter of 1995. The Company had net charge-offs of $310 thousand compared
to $497 thousand last year.
Noninterest Income
Noninterest income of $3.0 million was unchanged from last year. Service
charges and fees decreased $38 thousand, or 2.5%. Trust income decreased
$28 thousand, or 9.1% to $279 thousand. Investment gains were
inconsequential in both years. Other noninterest income increased $58
thousand and offset the decline in service charges and fees and trust income.
Noninterest Expense
Total noninterest expense was down slightly from $7.7 million to $7.6
million. Salaries and benefits, the largest component of noninterest
expense, decreased $113 thousand, or 2.6%. Occupancy expenses remained
stable while equipment expenses decreased $35 thousand or 5.6%. These
declines were partially offset by an 8.1% increase in bank shares
tax and a $46 thousand increase in FDIC insurance. While the FDIC continued
to charge a nominal premium in the third quarter of 1996, it actually gave
refunds in the third quarter of 1995.
Income Taxes
Income tax expense increased $25 thousand or 2.0% from the third quarter of
1995. The effective tax rate was 29.3% for the third quarter of 1996 down
from 30.7% for the same period in 1995.
First Nine Months of 1996
Net income for the nine months was $9.8 million, or $2.54 per share compared
to $7.4 million, or $1.92 for the same period in 1995.
The return on average assets was 1.45% compared to 1.16% for the same period
in 1995. The return on average equity was 12.20%, up from 9.79% for the
first nine months of 1995.
Net Interest Income
Net interest income for the first nine months totaled $50.7 million, compared
to $49.7 million last year. Interest and fees on loans is down $329
thousand, less than 1%. Interest on taxable securities is up $1.0 million,
or 17.1%. Interest on nontaxable securities is also up $413 thousand, or
24.3%. Interest on short term investments is down $139 thousand, or 6.2%
Interest expense on deposits is up $1.1 million, or 5.8%. Interest expense
on other borrowed funds is down $285 thousand, or 19.9%.
The net interest margin decreased to 5.00% from 5.20% for the first nine
months in 1995. The spread decreased to 4.25% from 4.47%.
Asset Quality
The provision for loan losses increased $851 thousand, or 31.4%, compared to
1995. The Company had net charge-offs of $3.5 million compared to $3.1
million in the prior year. Several loans to one borrower (an entity
controlled by relatives of a director), totaling $976 thousand were charged
off during the second quarter of 1995. Remaining loans with this borrower
have been charged-off in 1995 and in the second quarter of 1996. Charge-offs
of $733 thousand occurred in the second quarter of 1996 at the consumer
finance subsidiary. On May 31, 1996, all the loans of the consumer finance
subsidiary were sold and operations were ceased. Moreover, an improvement
in asset quality can be seen in the decline in net charge-offs in the third
quarter as well as the decline in nonperforming assets. On September 30,
1996, nonperforming assets were $6.0 million, down $920 thousand, or 13.2%
from year-end 1995.
The allowance for loan losses was 1.54% of net loans, down slightly from
1.56% at the end of 1995. Management believes 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 for the nine months ended September 30, 1996 totaled
$11.7 million, up $3.1 million from the first nine months of 1995 due
primarily to a gain on sale of loans in the second quarter. Service charges
and fees increased $323 thousand, or 8.2%. Trust income was down $53
thousand, or 7.0%.
Noninterest Expense
Noninterest expense for the nine months ended September 30, 1996 was $23.3
million, down $1.0 million, or 4.3% from last year. Salaries and benefits
were up $231 thousand, or 1.9%. Occupancy expense was down $111 thousand,
or 6.8%. Equipment expense also decreased $72 thousand, or 3.7%. FDIC
insurance decreased $741 thousand, or 98.7%, due to the FDIC charging a
nominal premium in the first nine months of 1996.
Income Taxes
Income taxes increased $1.1 million, or 33.0% from last year and totaled
$4.3 million. The effective tax rate remained flat at 30.3%.
Financial Condition
Total assets were $922 million on September 30, 1996, an increase of $15.7
million, or 1.7% from December 31, 1995. Assets averaged $896 million for
the first nine months of 1996, an increase of $34 million, or 3.9% from 1995.
Loans
Net loans increased $6.5 million, or 1.2% from December 31, 1995 to $550
million. The increase in loans can be primarily attributed to a $6.0
million increase in leases at the Company's lease financing subsidiary.
In addition, the Company's banking affiliates have experienced enough loan
growth in the first nine months of 1996 to make up for the approximately $12
million in net loans sold by the Company's consumer finance subsidiary
earlier this year. On average, loans and leases represented 66.8% of
earning assets compared to 69.3% for 1995.
Temporary Investments
Federal funds sold and securities purchased under agreements to resell
averaged $51 million, relatively unchanged from the average of $52 million
at year end.
Investment Securities
Investment securities were $230 million on September 30, 1996, a $3.4
million or 1.5% increase from year-end 1995. Available for sale and held to
maturity securities were $121 million and $109 million, respectively.
Investment securities averaged $220 million for the first nine months, an
increase of $33 million, or 17.7%, from the 1995 average. Unrealized net
losses on securities available for sale were $567 thousand on September 30,
1996, as compared to $826 thousand on December 31, 1995. The unrealized net
loss relates entirely to debt securities which the Company has the capability
to hold to maturity and, therefore, should not realize any loss of principal.
Nonperforming Assets
Nonperforming assets totaled $6.0 million on September 30, 1996, down $920
thousand, or 13.2%, from year-end 1995. Nonperforming assets to total equity
declined to 5.57% from 6.63%. Nonperforming assets as a percentage of loans
and other real estate was 1.12%, down from 1.28% at year-end.
Nonaccrual loans were $3.0 million, up slightly from $2.9 million from
year-end. Loans 90 days past due increased to $2.3 million from $1.7
million. Restructured loans were $626 thousand, down from $1.6 million.
Other real estate owned decreased significantly to $58 thousand at
September 30, 1996, down from $776 thousand at year-end 1995.
Deposits
Total deposits increased $14.4 million, or 1.9%, from year-end to $769
million. Deposits averaged $751 million during the first nine months of 1996.
Borrowed Funds
Borrowed funds totaled $35 million, a decrease of $3.0 million, or 7.9% from
year-end 1995. Borrowed funds averaged $30 million.
Shareholders' Equity
Shareholders' equity was $108 million on September 30, 1996, increasing $3.2
million from year-end. During the third quarter of 1996 the Company
purchased 67,400 shares of its own stock at an average cost of $39.31. The
resulting decreases in common stock outstanding, surplus, and retained
earnings totaled $2.6 million and were more than offset by the quarter's net
income. Dividends of $4.2 million were declared during the first nine months
of 1996.
The Company's ratios as of September 30, 1996 and the regulatory minimums are as
follows:
Farmers Capital Regulatory
Bank Corporation Minimum
Tier 1 risk based 18.33% 4.00%
Total risk based 19.58% 8.00%
Leverage 11.87% 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, 1996.
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 1996.
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.
<PAGE>
Part II
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 3, Legal Proceedings, in Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 for a description of
a civil suit brought against the Registrant's Georgetown affiliate on
August 1, 1994 by a loan customer. On October 16, 1996, the court dismissed
certain counts and granted summary judgement on the remaining. Although the
plaintiff has the option to appeal the decision, management still believes
the action is without merit and that any liability resulting from one or more
of the claims will not materially affect the Registrant's consolidated
financial position or results of operations, although resolution in any year
or quarter could be material for that period.
There have been no other significant changes in contingencies or commitments,
including other pending litigation to report at this time.
ITEM 5 - OTHER INFORMATION
On October 28, 1996, the Corporation announced an increase in their quarterly
dividend from thirty-six cents per share to forty-one cents per share, which
represents an increase of 13.9%. Holders of record of the Corporation's
stock as of December 1, 1996 will be paid on January 1, 1997. The action to
increase the dividend was taken at the Board of Director's meeting on
October 28, 1996.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - none
b) Reports on Form 8-K (1) On July 3, 1996, the Corporation filed a report
on Form 8-K, pursuant to Item 5 of that form. The Corporation reported its
intention to repurchase up to 200,000 shares of its outstanding common stock.
No financial statements were filed as part of that report.
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: November 8, 1996 /s/ Charles Scott Boyd
Charles Scott Boyd
President and CEO (Principal Executive Officer)
Date: November 8, 1996 /s/ C. Douglas Carpenter
Cecil Douglas Carpenter
Vice President and CFO (Principal Financial
and Accounting Officer)
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This schedule contains summary financial information extracted from September
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