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 June 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
3,850,782 shares outstanding at August 10, 1996
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income -
For the Three Months and Six Months Ended
June 30, 1996 and June 30, 1995 4
Consolidated Statements of Cash Flows -
For the Six Months Ended
June 30, 1996 and June 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 13
Item 4 - Results of votes of security holders 13
Item 6 - Exhibits and Reports on Form 8-K 14
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share figures)
(unaudited)
June 30, December 31,
1996 1995
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 71,290 $ 41,126
Interest bearing deposits in other banks 607 688
Federal funds sold and securities purchased
under agreements to resell 48,140 68,370
Total cash and cash equivalents 120,037 110,184
Investment securities:
Available for sale 117,796 105,933
Held to maturity 115,013 120,991
Loans 548,914 554,942
Less: Allowance for loan losses (8,329) (8,472)
Unearned income (8,782) (11,762)
Loans, net 531,803 534,708
Bank premises and equipment 19,521 19,916
Interest receivable 8,408 7,889
Other assets 5,196 6,492
TOTAL ASSETS $ 917,774 $ 906,113
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 126,717 $ 109,490
Interest bearing 630,373 645,371
Total deposits 757,090 754,861
Other borrowed funds 43,699 38,524
Dividends payable 1,392 1,392
Interest payable 2,279 2,370
Other liabilities 4,907 4,037
Total liabilities 809,367 801,184
SHAREHOLDERS' EQUITY
Common stock par value $0.25 per share
4,804,000 shares authorized; 3,866,382
shares issued and outstanding at June 30,
1996 and December 31, 1995 967 967
Capital surplus 9,094 9,094
Retained earnings 99,554 95,694
Unrealized net loss on securities
available for sale (1,208) (826)
Total shareholders' equity 108,407 104,929
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 917,774 $ 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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
INTEREST INCOME
Interest and fees on loans $ 13,335 $ 13,313 $ 26,644 $ 26,203
Interest on investment securities:
Taxable 2,357 2,011 4,553 3,802
Nontaxable 709 558 1,388 1,120
Interest on deposits in other banks 20 22 31 51
Interest on federal funds sold
and securities purchased under
agreements to resell 611 692 1,382 1,568
Total interest income 17,032 16,596 33,998 32,744
INTEREST EXPENSE
Interest on deposits 6,728 6,493 13,664 12,552
Interest on other borrowed funds 383 495 770 1,020
Total interest expense 7,111 6,988 14,434 13,572
Net interest income 9,921 9,608 19,564 19,172
Provision for loan losses 1,819 1,048 3,089 1,761
Net interest income after provision
for loan losses 8,102 8,560 16,475 17,411
NONINTEREST INCOME
Service charges and fees 1,451 1,256 2,781 2,420
Trust income 238 277 429 454
Investment gains, net 1 10 1
Gain (loss) on sale of loans 3,052 (3) 3,239 (3)
Other 1,107 1,579 2,286 2,800
Total noninterest income 5,848 3,110 8,745 5,672
NONINTEREST EXPENSE
Salaries and employee benefits 4,281 4,068 8,496 8,152
Occupancy expenses, net 492 605 1,043 1,161
Equipment expenses 644 646 1,304 1,341
Bank shares tax 260 275 521 572
FDIC insurance 3 397 6 793
Other 2,086 2,573 4,243 4,602
Total noninterest expense 7,766 8,564 15,613 16,621
Income before income taxes 6,184 3,106 9,607 6,462
Income tax expense 1,995 920 2,963 1,930
NET INCOME $ 4,189 $ 2,186 $ 6,644 $ 4,532
Per common share:
Net income $ 1.08 $ 0.57 $ 1.72 $ 1.17
Dividends declared $ 0.36 $ 0.33 $ 0.72 $ 0.66
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)
(unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities
Net income $ 6,644 $ 4,532
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,251 1,331
Net amortization of investment securities
premiums and discounts:
Available for sale (272) (415)
Held to maturity 68 136
Provision for loan losses (3,089) 1,761
Deferred income tax (1)
Gain on sale of fixed assets (1)
Gain on sale of loans (3,052)
Gain on call of investment security:
Held to maturity (10) (1)
Changes in:
Interest receivable (519) (712)
Other assets 1,223 (869)
Interest payable (91) 366
Other liabilities 869 256
Net cash provided by operating activities 3,022 6,383
Cash flows from investing activities:
Proceeds from maturity or call of investment securities:
Available for sale 84,978 45,727
Held to maturity 18,961 27,842
Purchase of investment securities:
Available for sale (97,136) (51,708)
Held to maturity (13,053) (22,028)
Net increase in loans (5,746) (12,720)
Purchase of bank premises and equipment (765) (597)
Proceeds from sale of equipment 180 1
Proceeds from sale of loans 14,792
Net cash used in investing activities 2,211 (13,483)
Cash flows from financing activities:
Net increase in deposits 2,229 17,383
Dividends paid (2,784) (2,552)
Net increase (decrease) in other borrowed funds 5,175 (7,579)
Net cash provided by financing activities 4,620 7,252
Net change in cash and cash equivalents 9,853 152
Cash and cash equivalents at beginning of year 110,184 100,551
Cash and cash equivalents at end of period $ 120,037 $ 100,703
Supplemental disclosures:
Cash paid during the year for:
Interest $ 14,525 $ 13,206
Income taxes 1,800 2,036
Cash dividend declared and unpaid 1,392 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 June 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.
NOTE 3 - EFFECT OF IMPLEMENTING SFAS NO. 125
In June 1996, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinquishments of Liabilities". Under this standard, accounting for
transfers and servicing of financial assets and extinguishments of
liabilities is based on control. After a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished.
This statement applies prospectively in fiscal years beginning after
December 31, 1996. The Company does not expect the implementation of this
statement to have a material affect on the financial statements.
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Second Quarter 1996 vs. Second Quarter 1995
The Company reported earnings of $4.2 million, or $1.08 per share, for the
second quarter of 1996 compared to $2.2 million, or $0.57 per share one year
ago. The increase is due primarily to a $2.0 million after tax gain on the
sale of loans of the consumer finance subsidiary.
Return on average assets and return on average equity for the second quarter
of 1996 were 1.86% and 15.64%, respectively, compared to 1.00% and 8.66% for
the same period in 1995.
Net Interest Income
Net interest income totaled $9.9 million, compared to $9.6 million for the
second quarter of 1995. The net interest margin (net interest income as a
percentage of average earning assets), decreased to 5.11% compared to 5.18%
for 1995. Likewise the spread between rates earned and paid decreased from
4.46% to 4.38%.
Asset Quality
The provision for loan losses increased $771 thousand compared to the second
quarter of 1995. The Company had net charge-offs of $2.3 million compared to
$2.0 million last year.
Noninterest Income
Noninterest income of $5.8 million was up $2.7 million above last year's
figure due primarily to the gain on sale of loans. Service charges and fees
increased $195 thousand, or 15.5% to $1.5 million. Trust income decreased
$39 thousand, or 14.1% to $238 thousand. Investment gains were
inconsequential in both years.
Noninterest Expense
Total noninterest expense decreased $798 thousand, or 9.3% from the second
quarter of 1995 to $7.8 million. Salaries and benefits, the largest
component of noninterest expense, increased $213 thousand, or 5.2%.
Occupancy expense decreased $113 thousand or 18.7%, while equipment expense
remained stable. FDIC insurance expense decreased $394 thousand or 99.2%
due to the FDIC charging a nominal premium in the second quarter of 1996.
Income Taxes
Income tax expense increased $1.1 million, in excess of 100% from the second
quarter of 1995. The change in income tax expense can be directly attributed
to the increase in income before income taxes. The effective tax rate was
32.3% for the second quarter of 1996 up from 29.6% for the same period in
1995.
First Six Months of 1996
Net income for the six months was $6.6 million, or $1.72 per share compared
to $4.5 million, or $1.17 for the same period in 1995.
The return on average assets was 1.48% compared to 1.05% for the same period
in 1995. The return on average equity was 12.55%, up from 9.08% for the
first six months of 1995.
Net Interest Income
Net interest income for the first six months totaled $19.6 million, compared
to $19.2 million last year. Interest and fees on loans is up $441 thousand,
or 1.7%. Interest on taxable securities is up $751 thousand, or 19.8%.
Interest on nontaxable securities is also up, $268 thousand, or 23.9%.
Interest on short term investments is down $206 thousand, or 12.7%
Interest expense on deposits is up $1.1 million, or 8.9%. Interest expense
on other borrowed funds is down $250 thousand, or 24.5%.
The net interest margin decreased to 5.05% from 5.16% for the first six
months in 1995. The spread decreased to 4.31% from 4.44%.
Asset Quality
The provision for loan losses increased $1.3 million, or 75.4%, compared to
1995. The Company had net charge-offs of $3.2 million compared to $2.6
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 prior to the sale of these loans. The consumer finance subsidiary
is no longer operational. Charge-offs in the second quarter of 1996 were also
impacted by slightly larger commercial loan charge-offs compared to 1995.
These charge-offs related to only a few customers and do not represent a
systemic trend throughout the Company. Moreover, an improvement in asset
quality can be seen in the decline in nonperforming assets. On June 30,
1996, nonperforming assets were $5.1 million, down $1.8 million, or 26.3%
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 six months ended June 30, 1996 totaled $8.7
million, up $3.1 million from the first six months of 1995 due primarily to
a gain on sale of loans. Service charges and fees increased $361 thousand,
or 14.9%. Trust income was down $25 thousand, or 5.5%.
Noninterest Expense
Noninterest expense for the first half of 1996 was $15.6 million, down $1.0
million, or 6.1% from last year. Salaries and benefits were up $344
thousand, or 4.2%. Occupancy expense was down $118 thousand, or 10.2%,
while equipment expense was stable. FDIC insurance decreased $787 thousand,
or 99.2%, due to the FDIC charging a nominal premium in the first six months
of 1996.
Income Taxes
Income taxes increased $1.0 million, or 53.5% from last year and totaled $3.0
million. The effective tax rate increased to 30.8% from 29.9% a year ago.
Financial Condition
Total assets were $918 million on June 30, 1996, an increase of $11.6
million, or 1.3% from December 31, 1995. Assets averaged $899 million for
the first six months of 1996, an increase of $36 million, or 4.2% from 1995.
Loans
Net loans decreased $2.9 million, or less than 1% from December 31, 1995 to
$540 million. The decrease in loans can be primarily attributed to the sale
of loans of the consumer finance subsidiary. After selling net loans of
$11.5 million, the Company's other subsidiaries have increased loans by $8.5
million since year end. On average, loans represented 67.1% of earning
assets compared to 69.3% for 1995.
Temporary Investments
Federal funds sold and securities purchased under agreements to resell
averaged $47 million, an increase of $4.5 million from the average at year end.
Investment Securities
Investment securities were $233 million on June 30, 1996, a $5.9 million or
2.6% increase from year-end 1995. Available for sale and held to maturity
securities were $118 million and $115 million respectively. Investment
securities averaged $222 million for the first six months, an increase of
$36 million, or 19.0%, from the 1995 average. Net unrealized losses after
tax on securities available for sale were $1.2 million on June 30, 1996, as
compared to $826 thousand on December 31, 1995. 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 $5.1 million on June 30, 1996, down $1.8
million, or 26.3%, from year-end 1995. Nonperforming assets to total equity
declined to 4.73% from 6.63%. Nonperforming assets as a percentage of loans
and other real estate was 0.95%, down from 1.28% at year-end.
Nonaccrual loans were $2.5 million, down from $2.9 million from year-end.
Loans 90 days past due increased to $2.0 million from $1.7 million.
Restructured loans were $636 thousand, down from $1.6 million. Other real
estate owned decreased significantly to $23 thousand at June 30, 1996, down
from $776 thousand at year-end 1995.
Deposits
Total deposits increased $2.2 million, less than 1%, from year-end to $757
million. Deposits averaged $751 million during the first six months of 1996.
Borrowed Funds
Borrowed funds totaled $44 million, an increase of $5.2 million, or 13.4%
from year-end 1995. Borrowed funds averaged $32 million.
Shareholders' Equity
Shareholders' equity was $108 million on June 30, 1996, increasing $3.5
million from year-end. Dividends of $2.8 million were declared during the
first six months of 1996.
The Company's ratios as of June 30, 1996 and the regulatory minimums are as
follows:
Farmers Capital Regulatory
Bank Corporation Minimum
Tier 1 risk based 18.62% 4.00%
Total risk based 19.87% 8.00%
Leverage 11.88% 3.00%
The capital ratios of all the subsidiary banks, on an individual basis, were
in excess of the applicable minimum regulatory capital ratio requirements at
June 30, 1996.
Accounting Requirements
In June 1996, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinquishments of Liabilities". Under this standard, accounting for
transfers and servicing of financial assets and extinguishments of
liabilities is based on control. After a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished.
This statement applies prospectively in fiscal years beginning after
December 31, 1996. The Company does not expect the implementation of this
statement to have a material affect on the financial statements.
Liquidity
The liquidity of the Company is 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.
Part II
ITEM 1 - LEGAL PROCEEDINGS
There have been no significant changes in contingencies or commitments,
including pending litigation to report at this time.
ITEM 4 - RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of shareholders was held May 14, 1996.
The matters that were voted upon included:
A. The election of nine directors in the following manner: two directors
for one-year terms ending in 1997; three directors for two-year terms
ending in 1998; and four directors for three-year terms ending in 1999,
or until their successors have been elected and qualified.
B. The ratification of the appointment of Coopers & Lybrand as independent
accountants for the Corporation and its subsidiaries for the calendar
year 1996.
The outcome of the voting is as follows:
Name For Against Withheld Abstained
Frank W. Sower, Jr. 2,966,836 0 0 265,614
J. Barry Banker 2,966,836 0 0 265,614
W. Benjamin Crain 2,966,636 0 0 265,614
Lloyd C. Hillard 2,965,936 0 0 266,514
Harold G. Mays 2,966,836 0 0 265,614
G. Anthony Busseni 2,966,536 0 0 265,914
James E. Bondurant 2,965,903 0 0 266,547
James H. Childers 3,060,993 0 0 171,457
E. Bruce Dungan 2,966,836 0 0 265,614
Ratification of the
appointment of Coopers
& Lybrand, LLP 3,057,298 168,294 0 6,858
Listed below is the name of each director whose term of office continued
after the meeting:
Frank W. Sower, Jr. James E. Bondurant
J. Barry Banker James H. Childers
W. Benjamin Crain E. Bruce Dungan
Lloyd C. Hillard Charles S. Boyd
Harold G. Mays Dr. John D. Sutterlin
G. Anthony Busseni Dr. John P. Stewart
In addition to the directors above, Charles T. Mitchell serves as an
Advisory Director for the Corporation.
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: 08/13/96 /s/ Charles Scott Boyd
Charles Scott Boyd
President and CEO (Principal Executive Officer)
Date: 08/13/96 /s/ Cecil Douglas Carpenter
Cecil Douglas Carpenter
Vice President and CFO (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from March 31,
1996 financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 71290
<INT-BEARING-DEPOSITS> 607
<FED-FUNDS-SOLD> 48140
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 117796
<INVESTMENTS-CARRYING> 115013
<INVESTMENTS-MARKET> 113881
<LOANS> 540132
<ALLOWANCE> 8329
<TOTAL-ASSETS> 917774
<DEPOSITS> 757090
<SHORT-TERM> 39954
<LIABILITIES-OTHER> 8578
<LONG-TERM> 3745
<COMMON> 967
0
0
<OTHER-SE> 107440
<TOTAL-LIABILITIES-AND-EQUITY> 917774
<INTEREST-LOAN> 26644
<INTEREST-INVEST> 5941
<INTEREST-OTHER> 1413
<INTEREST-TOTAL> 33998
<INTEREST-DEPOSIT> 13664
<INTEREST-EXPENSE> 14434
<INTEREST-INCOME-NET> 19564
<LOAN-LOSSES> 3089
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 15613
<INCOME-PRETAX> 9607
<INCOME-PRE-EXTRAORDINARY> 9607
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6644
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
<YIELD-ACTUAL> 5.05
<LOANS-NON> 2475
<LOANS-PAST> 1961
<LOANS-TROUBLED> 636
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8472
<CHARGE-OFFS> 3492
<RECOVERIES> 260
<ALLOWANCE-CLOSE> 8329
<ALLOWANCE-DOMESTIC> 8329
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
