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, 1997
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, 202 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
3,788,920 shares outstanding at April 22, 1997
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income -
For the Three Months Ended
March 31, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows -
For the Three Months Ended
March 31, 1997 and March 31, 1996 5
Notes to the Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 13
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(unaudited)
March 31, December 31,
1997 1996
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 73,777 $ 52,073
Interest bearing deposits in other banks 1,718 758
Federal funds sold and securities purchased
under agreements to resell 53,090 69,915
Total cash and cash equivalents 128,585 122,746
Investment securities:
Available for sale 117,713 109,291
Held to maturity 101,381 111,609
Total investment securities 219,094 220,900
Loans 560,161 567,447
Less: Allowance for loan losses (8,463) (8,741)
Unearned income (9,024) (9,198)
Loans, net 542,674 549,508
Bank premises and equipment 20,169 19,320
Interest receivable 7,301 8,129
Other assets 5,677 4,716
TOTAL ASSETS $ 923,500 $ 925,319
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 124,309 $ 103,488
Interest bearing 642,721 682,822
Total deposits 767,030 786,310
Other borrowed funds 36,260 20,165
Dividends payable 1,556 1,558
Interest payable 2,161 2,204
Other liabilities 5,570 5,486
Total liabilities 812,577 815,723
SHAREHOLDERS' EQUITY
Common stock par value $0.25 per share
4,804,000 shares authorized; 3,789,020
and 3,796,982 shares issued and outstanding
at March 31, 1997 and December 31, 1996 947 949
Capital surplus 8,913 8,931
Retained earnings 101,612 100,078
Net unrealized loss on securities available
for sale, net of tax (549) (362)
Total shareholders' equity 110,923 109,596
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 923,500 $ 925,319
See notes to the consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(unaudited)
Three Months Ended
March 31,
1997 1996
INTEREST INCOME
Interest and fees on loans $ 12,906 $ 13,309
Interest on investment securities:
Taxable 2,130 2,196
Nontaxable 769 679
Interest on deposits in other banks 19 11
Interest on federal funds sold and securities
purchased under agreements to resell 739 771
Total interest income 16,563 16,966
INTEREST EXPENSE
Interest on deposits 6,565 6,936
Interest on other borrowed funds 303 387
Total interest expense 6,868 7,323
Net interest income 9,695 9,643
Provision for loan losses 568 1,270
Net interest income after provision for
loan losses 9,127 8,373
NONINTEREST INCOME
Service charges and fees on deposits 1,302 1,226
Other service charges, commissions, and fees 997 861
Trust income 271 166
Securities gains 10
Other 692 634
Total noninterest income 3,262 2,897
NONINTEREST EXPENSE
Salaries and employee benefits 4,030 4,215
Occupancy expenses, net 483 551
Equipment expenses 695 660
Data processing expense 250 144
Bank franchise tax 211 261
Deposit insurance expense 21 3
Other 1,943 2,013
Total noninterest expense 7,633 7,847
Income before income taxes 4,756 3,423
Income tax expense 1,365 968
NET INCOME $ 3,391 $ 2,455
Per common share:
Net income $ .89 $ 0.64
Dividends declared $ .41 $ 0.36
Weighted average shares outstanding 3,795 3,866
See notes to the 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,
1997 1996
Cash flows from operating activities:
Net income $ 3,391 $ 2,455
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 624 631
Net amortization of securities
premiums and discounts:
Available for sale 10 (149)
Held to maturity 22 46
Provision for loan losses 568 1,270
Deferred income tax benefit (1)
Securities gain on call:
Held to maturity (10)
Changes in:
Interest receivable 828 347
Other assets (996) 1,195
Interest payable (43) (3)
Other liabilities 84 295
Net cash provided by operating activities 4,487 6,077
Cash flows from investing activities:
Proceeds from maturity or call of investment securities:
Available for sale 26,052 48,544
Held to maturity 11,932 12,635
Proceeds from sale of investment securities:
Available for sale 66
Purchase of investment securities:
Available for sale (34,832) (64,342)
Held to maturity (1,726) (7,542)
Net decrease in loans receivable 6,266 5,006
Purchase of bank premises and equipment (1,345) (363)
Proceeds from sale of equipment 3
Net cash provided by (used in) investing
activities 6,416 (6,062)
Cash flows from financing activities:
Net decrease in deposits (19,280) (2,547)
Dividends paid (1,557) (1,392)
Purchase of common stock (322)
Net increase (decrease) in other borrowed funds 16,095 (5,104)
Net cash used in financing activities (5,064) (9,043)
Net change in cash and cash equivalents 5,839 (9,028)
Cash and cash equivalents at beginning of year 122,746 110,184
Cash and cash equivalents at end of period $ 128,585 $ 101,156
Supplemental disclosures:
Cash paid during the period for:
Interest $ 6,941 $ 7,326
Income taxes 189 None
Cash dividend declared and unpaid 1,556 1,392
See notes to the consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
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 Company. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Estimates used in the preparation of the financial statements are based on
various factors including the current interest rate environment and the general
strength of the local economy. Changes in the overall interest rate environment
can significantly affect the Company's net interest income and the value of its
recorded assets and liabilities. Actual results could differ from those
estimates used in the preparation of the financial statements.
The financial information presented as of any date other than December 31 has
been prepared from the books and records without audit. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include
all of the information and the footnotes required by generally accepted
accounting principles for complete statements. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of such financial statements, have been included.
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, 1996.
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 - ADOPTION OF NEW ACCOUNTING PRINCIPLES
On January 1, 1997, the Company implemented Statement of Financial Accounting
Standard ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extingishments 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.
The implementation of SFAS No. 125 did not have a material effect on the
Company's financial statements.
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
First Quarter 1997 vs. First Quarter 1996
The Company reported earnings of $3.4 million, or $.89 per share, for the first
quarter of 1997 compared to earnings of $2.5 million, or $.64 per share for the
first quarter of 1996.
A reduction in the provision for loan losses of $702 thousand and the recovery
of legal fees in the amount of $189 thousand contributed significantly to the
increase in earnings for the first quarter of 1997 compared to the first quarter
of 1996.
Return on average assets was 1.51% for the first quarter of 1997, compared to
1.10% reported for the same period of 1996. Return on average equity was 12.48%
for the first quarter of 1997, an increase from 9.37% during the same period of
1996.
STATEMENT OF INCOME REVIEW
Net Interest Income
Net interest income totaled $9.7 million for the first quarter of 1997 compared
to $9.6 million for the first quarter 1996. Interest and fees on loans
decreased $403 thousand or 3.0%. This decrease relates primarily to the sale of
Money One, The Company's consumer finance subsidiary, in 1996. Interest on
taxable securities decreased $66 thousand, or 3.0% and interest on nontaxable
securities is up $90 thousand, or 13.3%. Interest on short term investments is
down $32 thousand, or 4.2%.
Interest expense on deposits is down $371 thousand, or 5.3%. This decrease is
partially due to the repricing of a substantial base of the Company's
Certificates of Deposit. Interest on short term borrowings is down $84
thousand, or 21.7%.
The net interest margin (net interest income as a percentage of average earning
assets), decreased to 4.94% during the first quarter of 1997 compared to 4.99%
in the first quarter of 1996. The spread between rates earned and paid
decreased to 4.20% compared to 4.26% in the first quarter of 1996.
Asset Quality
The provision for loan losses decreased $702 thousand or 55.3% compared to the
first quarter 1996. The Company had net charge-offs of $846 thousand in the
first quarter of 1997 compared to net charge-offs of $934 thousand in the same
period of 1996. The allowance for loan losses was 1.54% of net loans in the
first quarter of 1997, down 3 basis points from year end 1996. 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 $3.3 million increased $365 thousand, or 12.6% from the
first quarter of 1996. A refund of legal fees expensed in prior periods of $189
thousand contributed significantly to the increase. Service charges on deposits
of $1.3 million increased $76 thousand or 6.2% from the first quarter of 1996.
Other service charges, commissions, and fees increased $136 thousand or 16% to
$997 thousand from the first quarter of 1996. Trust fees increased $105
thousand, or 63% to $271 thousand. This is primarily the result of reporting
income from trust services on the accrual basis of accounting instead of the
cash basis which had been used in prior periods. The Company believes the
accrual basis of accounting better reflects the income earned on trust services,
and does not believe the change will be material for the year ended December 31,
1997.
Noninterest Expense
Total noninterest expenses decreased $214 thousand or 2.7% from the first
quarter of 1996 to $7.6 million. Salaries and benefits, the largest component
of noninterest expense, decreased $185 thousand, or 4.4%. Occupancy expense,
net of rental income, decreased $68 thousand to $483 thousand. These reductions
are primarily the result of the sale of Money One, the Company's consumer
finance subsidiary, during 1996. Equipment expenses increased $35 thousand, or
5.3%. Data processing expense increased 74% from $144 thousand to $250 thousand
for the first quarter of 1997. The increase is primarily attributable to an
increase in credit card interchange and processing. Bank franchise taxes
decreased $50 thousand, or 19.2%. FDIC insurance expense increased $18 thousand
to 21 thousand for the first quarter of 1997.
Income taxes
Income tax expense increased $397 thousand, or 41.0% from the first quarter of
1996 to $1.4 million. The first quarter 1997 effective tax rate was 28.7%, up
slightly from 28.3% in the first quarter of 1996.
BALANCE SHEET REVIEW
Total assets were $924 million on March 31, 1997, less than a 1% decrease from
December 31, 1996. Assets averaged $912 million for the first quarter of 1997,
an increase of $13 million, or 1.4% from year end 1996.
Loans
Loans, net of unearned income, decreased $7.1 million, or 1.3% from December 31,
1996 to $551 million. On average, loans represented 67.5% of earning assets
compared to 67.0% for year end 1996. When loan demand is down, the available
funds are redirected to either temporary investments or investment securities.
Temporary Investments
Federal funds sold and securities purchased under agreements to resell averaged
$58.9 million, an increase of $7.3 million, or 14.2% from year end 1996.
Investment Securities
Investment securities were $219 million on March 31, 1997, a decrease of $1.8
million, or less than 1% from year end 1996. Available for sale and held to
maturity securities were $118 and $101 million, respectively. Investment
securities averaged $211 million for the first quarter of 1997, a decrease of
$7.1 million, or 3.3% from year end 1996. The net unrealized loss on securities
available for sale, net of taxes, was $549 thousand on March 31, 1997, as
compared to $362 thousand on December 31, 1996.
Nonperforming assets
Nonperforming assets totaled $5.8 million on March 31, 1997, down $800 thousand
or 11.1% from $6.6 million at year end 1996. Nonperforming assets to total
equity decreased from 6.1% at year end 1996 to 5.3% at March 31, 1997.
Nonperforming assets as a percentage of loans and other real estate decreased
from 1.18% at year end to 1.06%. 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 has decreased the Company's
nonperforming assets 66.6% since December 31, 1992.
Other real estate owned which had a zero balance at year end 1996, increased to
$93 thousand on March 31, 1997.
Deposits
Total deposits decreased $19.3 million, or 2.5%, from year end 1996 to $767
million. The Company's lead bank, Farmers Bank & Capital Trust Company, is the
depository of the Commonwealth of Kentucky in Frankfort. As such, fluctuations
in deposits are not unexpected. Deposits averaged $768 million, an increase of
$14.5 million, or 1.9% from year end 1996.
Borrowed Funds
Borrowed funds totaled $36.3 million, an increase of $16.1 million, or 79.8%
from year end 1996. This increase is due to repurchase agreements with the
Commonwealth of Kentucky. The fluctuations are due to the relationship with the
Commonwealth of Kentucky as described above. Borrowed funds averaged $27
million, a decrease of $2.4 million, or 0.1%.
Shareholders' Equity
Shareholders' equity was $111 million on March 31, 1997, increasing $1 million
from year end 1996. The Company purchased 7,962 shares of its outstanding
common stock during the first quarter of 1997 for a total cost of $322 thousand.
Dividends of $1.6 million were declared during the first quarter of 1997. The
Company's capital ratios as of March 31, 1997, the regulatory minimums and the
regulatory standard for a "well capitalized" institution are as follows:
Farmers Capital Regulatory Well
Bank Corporation Minimum Capitalized
Tier 1 risk based 18.43% 4.00% 6.00%
Total risk based 19.68% 8.00% 10.00%
Leverage 12.01% 4.00% 5.00%
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, 1997.
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 1997.
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 banks' core deposits consisting of both business and nonbusiness
deposits
2. Cash flow generated by repayment of loan principal and interest
3. Federal funds purchased and securities sold under agreements to
repurchase
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.
EFFECT OF IMPLEMENTING RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information About
Capital Structure." SFAS No. 128 simplifies the computation of earnings per
share ("EPS") by replacing the presentation of primary EPS with a presentation
of basic EPS. The Statement requires dual presentation of basic and diluted EPS
by entities with complex capital structures. Basic EPS includes no dilution and
is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
of an entity, similar to fully diluted EPS.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods, and requires restatement of
all prior period EPS data presented. The Company does not expect the
implementation of this Statement to have a material effect on the consolidated
financial statements.
SFAS No. 129 establishes standards for disclosing information about an entity's
capital structure. This Statement contains no change in disclosure requirements
for companies that were subject to previously existing requirements. This
Statement was issued to eliminate the exemption of nonpublic entities from
certain previously issued disclosure requirements.
This Statement is effective for financial statements for periods ending after
December 15, 1997. This Statement will not have an effect on the Company's
consolidated financial statements.
Part II
ITEM 1 - LEGAL PROCEEDINGS
There are no significant changes in contingencies or commitments, including
pending litigation to report at this time.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - none
b) Reports on Form 8-K
On March 7, 1997 the Company filed a report on Form 8-K pursuant to Item 5
of that form. The Company reported, as a result of a formal proposal process,
the appointment of KPMG Peat Marwick LLP as its principal accountants. The
appointment of KPMG Peat Marwick LLP was approved by the Company's Board of
Directors. The Company also reported that there were no disagreements with its
former accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure or any reportable
events. No financial statements were filed as part of that form.
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: May 12, 1997 /s/ Charles S. Boyd
Charles Scott Boyd,
President and CEO (Principal Executive Officer)
Date: May 12, 1997 /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 the March
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