UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 incorporation (I.R.S. Employer Identification
or organization) Number)
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
3,781,220 shares outstanding at November 10, 1997
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
For the Three Months and Nine Months Ended
September 30, 1997 and September 30, 1996 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended
September 30, 1997 and September 30, 1996 5
Consolidated Statement of Changes in
Shareholders' Equity - For the Nine Months
Ended September 30, 1997 6
Notes to the Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 16
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(unaudited)
September 30, December 31,
1997 1996
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 98,487 $ 52,073
Interest bearing deposits in other banks 536 758
Federal funds sold and securities purchased
under agreements to resell 29,311 69,915
Total cash and cash equivalents 128,334 122,746
Investment securities:
Available for sale 102,251 109,291
Held to maturity 101,186 111,609
Total investment securities 203,437 220,900
Loans 584,517 567,447
Less:
Allowance for loan losses (9,014) (8,741)
Unearned income (9,014) (9,198)
Loans, net 566,489 549,508
Bank premises and equipment 21,062 19,320
Interest receivable 7,993 8,129
Deferred income taxes 389 613
Other assets 5,389 4,103
TOTAL ASSETS $ 933,093 $ 925,319
LIABILITIES
Deposits:
Noninterest bearing $ 155,068 $ 103,488
Interest bearing 617,298 682,822
Total deposits 772,366 786,310
Other borrowed funds 37,239 20,165
Dividends payable 1,550 1,558
Interest payable 2,017 2,204
Other liabilities 4,551 5,486
Total liabilities 817,723 815,723
SHAREHOLDERS' EQUITY
Common stock par value $0.25 per share
4,804,000 shares authorized; 3,781,220 and 3,796,982
shares issued and outstanding at September 30,
1997 and December 31, 1996 945 949
Capital surplus 8,894 8,931
Retained earnings 105,455 100,078
Net unrealized gain (loss) on securities
available for sale, net of tax 76 (362)
Total shareholders' equity 115,370 109,596
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 933,093 $ 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
INTEREST INCOME
Interest and fees on loans $ 13,369 $ 12,971 $ 39,341 $ 39,615
Interest on investment securities:
Taxable 2,216 2,332 6,553 6,885
Nontaxable 783 723 2,327 2,111
Interest on deposits in other banks 30 13 79 44
Interest on federal funds sold and
securities purchased under
agreements to resell 554 686 1,928 2,068
Total interest income 16,952 16,725 50,228 50,723
INTEREST EXPENSE
Interest on deposits 6,410 6,759 19,392 20,423
Interest on other borrowed funds 465 375 1,070 1,145
Total interest expense 6,875 7,134 20,462 21,568
Net interest income 10,077 9,591 29,766 29,155
Provision for loan losses 407 468 1,493 3,557
Net interest income after
provision for loan losses 9,670 9,123 28,273 25,598
NONINTEREST INCOME
Service charges and fees on deposits 1,397 1,359 3,972 3,926
Other service charges, commissions,
and fees 956 861 2,872 2,582
Data processing income 360 345 1,118 1,032
Trust income 240 250 779 640
Investment securities gains 0 0 0 10
Gain (loss) on sale of loans 5 (13) 13 3,226
Other 128 152 589 283
Total noninterest income 3,086 2,954 9,343 11,699
NONINTEREST EXPENSE
Salaries and employee benefits 4,104 4,165 11,862 12,661
Occupancy expense, net 515 480 1,504 1,523
Equipment expense 676 595 2,063 1,899
Data processing expense 282 278 770 713
Bank franchise tax 287 241 779 762
Deposit insurance expense 25 4 75 10
Other 1,906 1,880 5,540 5,688
Total noninterest expense 7,795 7,643 22,593 23,256
Income before income taxes 4,961 4,434 15,023 14,041
Income tax expense 1,499 1,297 4,385 4,260
NET INCOME $ 3,462 $ 3,137 $ 10,638 $ 9,781
Per common share:
Net income $ 0.92 $ 0.82 $ 2.81 $ 2.54
Dividends declared 0.41 0.36 1.23 1.08
Weighted average shares outstanding 3,781 3,836 3,788 3,856
See notes to the consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income $ 10,638 $ 9,781
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,951 1,840
Net amortization of securities
premiums and discounts:
Available for sale 0 (365)
Held to maturity 53 88
Provision for loan losses 1,493 3,557
Gain on sale of loans (13) (3,226)
Loss on sale of fixed assets 6 8
Securities gain on call:
Held to maturity 0 (10)
Decrease (increase) in interest receivable 136 (96)
(Increase) decrease in other assets (1,686) 878
Decrease in interest payable (187) (158)
(Decrease) increase in other liabilities (935) 1,212
Net cash provided by operating activities 11,456 13,509
Cash flows from investing activities:
Proceeds from maturity or call of investment securities:
Available for sale 99,923 99,724
Held to maturity 25,101 36,471
Proceeds from sale of investment securities:
Available for sale 66
Purchase of investment securities:
Available for sale (92,288) (114,594)
Held to maturity (14,731) (24,309)
Loans originated for investment, net of
principal collected (26,166) (22,313)
Purchase of bank premises and equipment (3,302) (1,168)
Proceeds from sale of equipment 5 180
Proceeds from sale of loans 7,704 15,513
Net cash used in investing activities (3,688) (10,496)
Cash flows from financing activities:
Net (decrease) increase in deposits (13,944) 14,454
Dividends paid (4,666) (4,176)
Purchase of common stock (644) (2,650)
Net increase (decrease) in other borrowed funds 17,074 (3,039)
Net cash provided by financing activities (2,180) 4,589
Net increase (decrease) in cash and cash equivalents 5,588 7,602
Cash and cash equivalents at beginning of year 122,746 110,184
Cash and cash equivalents at end of period $ 128,334 $ 117,786
Supplemental disclosures:
Cash paid during the period for:
Interest $ 20,649 $ 21,726
Income taxes 4,249 2,835
Cash dividend declared and unpaid 1,550 1,381
See notes to the consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands except per share data)
(unaudited)
Net Unrealized
Gain (Loss) Total
Common Capital Retained on Securities Shareholders'
Stock Surplus Earnings Available for Sale Equity
Balance at
January 1, 1997 $ 949 $ 8,931 $ 100,078 $ (362) $ 109,596
Cash dividends
declared $1.23
per share (4,658) (4,658)
Purchase of 15,762
shares of common
stock (4) (37) (603) (644)
Net income 10,638 10,638
Change in net
unrealized loss on
securities available
for sale, net of tax 438 438
Balance at September
30, 1997 $ 945 $ 8,894 $ 105,455 $ 76 $ 115,370
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 os such financial statements, have been included. Results of
interim periods are not necessarily indicative of results expected for the full
year.
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 & DISCLOSURE REQUIREMENTS
On January 1, 1997, the Company implemented Statement of Financial Accounting
Standards ("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 consolidated financial statements, as the Company enters into a very
limited number of sales of financial assets.
On January 28, 1997 the Securities and Exchange Commission adopted rules to
clarify and expand existing disclosure requirements about derivatives and other
financial instruments as well as derivative commodity instruments. These rules
require enhanced disclosure of accounting policies for derivative financial
instruments and derivative commodity instruments. These rules also expand
existing disclosure requirements to include quantitative and qualitative
information about market risk inherent in market risk sensitive instruments.
Accounting policy disclosures are required in the first quarterly report filed
for a period ended after June 15, 1997. Following are the Company's derivative
accounting policy disclosures.
A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. The Company currently does not enter into futures, forwards,
swaps, or options. However, the Company is party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments involve to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates and may require collateral from the borrower if deemed
necessary by the Company. Standby letters of credit are conditional commitments
issued by the Company to guarantee the performance of a customer to a third
party up to a stipulated amount and with specified terms and conditions.
Commitments to extend credit and standby letters of credit are not recorded as
an asset or liability by the Company until the instrument is exercised.
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter 1997 vs. Third Quarter 1996
Net income for the third quarter of 1997 was $3.5 million or $.92 per share
compared to earnings of $3.1 million or $.82 per share for the same period in
1996. The increase in third quarter income was primarily due to a 5% increase in
net interest income and a slight decrease in the provision for loan losses.
Return on average assets was 1.53% for the third quarter of 1997, compared to
1.40% reported for the same period of 1996. Return on average equity was 12.06%
for the third quarter of 1997, an increase from 11.67% during the same period of
1996.
Net Interest Income
Net interest income totaled $10.1 million for the third quarter of 1997 compared
to $9.6 million for the third quarter 1996. Interest and fees on loans
increased $398 thousand or 3.1%. Interest on taxable securities decreased $116
thousand, or 5.0% and interest on nontaxable securities increased $60 thousand,
or 8.3%. Interest on short term investments decreased $115 thousand, or 16.5%.
Interest expense on deposits decreased $349 thousand, or 5.2%. This decrease is
partially due to the repricing of a substantial base of the Company's
certificates of deposit. Interest on other borrowed funds increased $90
thousand to $465 thousand.
The net interest margin (net interest income as a percentage of average earning
assets), increased to 5.12% during the third quarter of 1997 compared to 4.89%
in the third quarter of 1996. The spread between rates earned and paid
increased to 4.32% compared to 4.13% in the third quarter of 1996.
Asset Quality
The Company continues to emphasize the importance of maintaining a quality loan
portfolio. These efforts have produced a decrease in the provision for loan
losses, net charge offs and nonperforming assets when compared to the prior
period. The provision for loan losses decreased $61 thousand, or 13% compared
to the third quarter 1996. The Company had net charge-offs of $243 thousand in
the third quarter of 1997 compared to net charge-offs of $310 thousand in the
same period of 1996. The allowance for loan losses was 1.57% of net loans in the
third quarter of 1997, an increase of 3 basis points from the same period in
1996. Management continues to emphasize collection efforts and evaluation of
risks within the portfolio.
Noninterest Income
Noninterest income of $3.1 million increased $132 thousand, or 4.5% from the
third quarter of 1996. Service charges and fees on deposits of $1.4 million was
unchanged from the third quarter of 1996. Other service charges, commissions,
and fees increased $95 thousand, or 11.0% to $956 thousand from the third
quarter of 1996. Data processing fees increased $15 thousand, or 4.3% to $360
thousand. Trust fees decreased $10 thousand, or 4.0% to $240 thousand.
Noninterest Expense
Total noninterest expenses increased $152 thousand or 2.0% from the third
quarter of 1996 to $7.8 million. Salaries and employee benefits, the largest
component of noninterest expense, decreased $61 thousand, or 1.5%. Occupancy
expense, net of rental income, increased $35 thousand to $515 thousand.
Equipment expenses increased $81 thousand, or 13.6%. Data processing expense
increased 1.4% from $278 thousand to $282 thousand for the third quarter of
1997. Bank franchise taxes increased $46 thousand, or 19.1%. Deposit insurance
expense increased $21 thousand to $25 thousand for the third quarter of 1997.
Income taxes
Income tax expense for the third quarter of 1997 was $1.5 million compared to
$1.3 million for the same period in 1996. The third quarter 1997 effective tax
rate was 30.2%, an increase from 29.3% in the third quarter of 1996.
First nine months of 1997
Net income for the nine months ended September 30, 1997 was $10.6 million, or
$2.81 per share compared to $9.8 million, or $2.54 per share for the same period
in 1996. Excluding the after tax gain of $2.0 million from the sale of the
Company's consumer finance subsidiary in the prior year, net income increased
$2.9 million for the first nine months of 1997 compared to the same period last
year. The increase in earnings is primarily due to the reduction of the
provision for loan losses of the Company's bank subsidiaries and the reduction
of the overhead expenses of the consumer finance subsidiary in the amounts of
$1.4 million and $771 thousand, respectively, net of tax.
Return on average assets was 1.57%, compared to 1.45% for the same period in
1996. Return on average equity was 12.72%, up from 12.20% for the first nine
months of 1996.
Net interest income
Net interest income totaled $29.8 million for the first nine months of 1997
compared to $29.2 million for the first nine months of 1996. Interest and fees
on loans decreased $274 thousand or less than 1%. This decrease relates
primarily to the sale of Money One, the Company's consumer finance subsidiary.
Interest on taxable securities decreased $332 thousand, or 4.8% and interest on
nontaxable securities increased $216 thousand or 10.2%. Interest on short term
investments decreased $105 thousand, or 5.0%
Interest expense on deposits decreased $1.0 million, or 5.0%. This decrease is
partially due to the repricing of a substantial base of the Company's
certificates of deposit. Interest on short term borrowings decreased $75
thousand, or 6.6%.
The net interest margin (net interest income as a percentage of average earning
assets), increased to 5.05% during the first nine months of 1997 compared to
5.00% for the same period in 1996. The spread between rates earned and paid
increased to 4.29% compared to 4.25% for the first nine months of 1996.
Asset Quality
The provision for loan losses decreased $2.1 million or 58% compared to the
first nine months of 1996. The Company had net charge-offs of $1.2 million for
the first nine months of 1997 compared to net charge-offs of $3.5 million in the
same period of 1996. These reductions are the result of the sale of Money One
in the prior year and management's continuing efforts to improve the Company's
overall loan quality. The allowance for loan losses was 1.57% of net loans at
September 30, 1997, unchanged from year end 1996. Management continues to
emphasize collection efforts and evaluation of risks within the portfolio.
Noninterest Income
Noninterest income for the first nine months of 1997 was $9.3 million, a
decrease of $2.4 million, or 20% from the same period in 1996. The decrease is
primarily due to the gain on the sale of the Company's consumer finance
subsidiary reported in the prior year. Service charges and fees on deposits of
$4.0 million is an increase of 1.2 % from the first nine months of 1996. Other
service charges, commissions, and fees increased $290 thousand or 11.2% to $2.9
million for the nine months ended September 30, 1997. Data processing income
increased $86 thousand or 8.3% for the period ended September 30, 1997 compared
to the same period in 1996. Trust fees increased $139 thousand, or 22% to $779
thousand.
Noninterest Expense
Total noninterest expenses decreased $663 thousand, or 2.9%, to $22.6 million
for the first nine months of 1997 compared to the same period in 1996. Salaries
and employee benefits, the largest component of noninterest expense, decreased
$799 thousand, or 6.3%. These reductions are primarily the result of the sale of
Money One, the Company's consumer finance subsidiary, during 1996. Occupancy
expense, net of rental income, was relatively unchanged at $1.5 million.
Equipment expense increased $164 thousand, or 8.6%. Data processing expense
increased 8.0% from $713 thousand to $770 thousand for the nine months ended
September 30, 1997. The increase is primarily attributable to an increase in
credit card interchange and processing. Bank franchise taxes increased $17
thousand, or 2.2%. Deposit insurance expense increased $65 thousand to $75
thousand for the nine months ended September 30, 1997.
Income taxes
Income tax expense for the first nine months of 1997 was $4.4 million compared
to $4.3 million in 1996. The effective tax rate was 29.2% for the first nine
months of 1997, down from 30.3% for the same period in 1996.
FINANCIAL CONDITION
Total assets were $933 million on September 30, 1997, an increase of $7.8
million or less than 1% from December 31, 1996. Assets averaged $904 million
for the first nine months of 1997, an increase of $5.6 million, or 1% from year
end 1996.
Loans
Loans, net of unearned income, increased $16.8 million, or 3.0% from December
31, 1996 to $576 million. On average, loans represented 68% of earning assets
compared to 67% for year end 1996. Average loans have increased approximately
$15 million since year end. These loans were funded primarily from the proceeds
of bond maturities within the investment portfolio, temporary investments and
the increase in average customer deposits.
Temporary Investments
Time deposits with banks, federal funds sold and securities purchased under
agreements to resell averaged $49.5 million, a decrease of $2.1 million, or 4.2%
from year end 1996.
Investment Securities
Investment securities were $203 million on September 30, 1997, a decrease of
$17.5 million, or 7.9% from year end 1996. Available for sale and held to
maturity securities were $102 million and $101 million, respectively.
Investment securities averaged $210 million for the first nine months of 1997, a
decrease of $8.1 million, or 3.7% from year end 1996. The Company had a net
unrealized gain on securities available for sale, net of taxes, of $76 thousand
on September 30, 1997, as compared to an unrealized loss of $362 thousand on
December 31, 1996.
Nonperforming assets
Nonperforming assets, consisting of nonaccrual loans, restructured loans, loans
past due ninety days or more, and other real estate owned, totaled $5.8 million
on September 30, 1997, down $800 thousand or 12.3% from $6.6 million at year end
1996. Nonperforming assets to total equity decreased from 6.0% at year end 1996
to 5.0% at September 30, 1997. Nonperforming assets as a percentage of loans
and other real estate decreased from 1.2% at year end to 1.0%. 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 67% since December
31, 1992.
Nonaccrual loans were $2.8 million at September 30, 1997, a slight decrease from
$2.9 million at year end 1996. Loans 90 days or more past due decreased to $1.5
million from $1.8 million. Restructured loans were $1.3 million, down from $1.8
million at year end.
Other real estate owned, which had a zero balance at year end 1996, increased to
$103 thousand at September 30, 1997.
Deposits
Total deposits decreased $13.9 million, or 1.8%, from year end 1996 to $772
million. The Company's lead bank, Farmers Bank & Capital Trust Company, is the
depository for the Commonwealth of Kentucky in Frankfort. As such, fluctuations
in deposits are not unexpected. Deposits averaged $754 million, an increase of
$1.3 million from year end 1996.
Borrowed Funds
Borrowed funds totaled $37.2 million, an increase of $17.1 million from year end
1996. This increase is due to repurchase agreements entered into with the
Commonwealth of Kentucky. The fluctuations are due to the relationship with the
Commonwealth of Kentucky as described in the preceding section. Borrowed funds
averaged $34 million, an increase of $4.9 million, or 17% from year end 1996.
CAPITAL RESOURCES
Shareholders' equity was $115 million on September 30, 1997, increasing $5.8
million from year end 1996. During 1996, the Company announced that it would
purchase up to 200,000 shares of its outstanding common stock as market
conditions permit. At September 30, the Company has purchased a total of 85,162
shares under this plan for a total cost of approximately $3.4 million. The
Company purchased 15,762 shares of its outstanding common stock during the first
nine months of 1997 for a total cost of $644 thousand. Dividends of $4.7
million, or $1.23 per share, were declared during the first nine months of 1997,
an increase of $.15 per share for the same period in 1996.
Consistent with the objective of operating a sound financial organization,
Farmers Capital Bank Corporation maintains capital ratios well above regulatory
requirements. The Company's capital ratios as of September 30, 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 19.05% 4.00% 6.00%
Total risk based 20.30% 8.00% 10.00%
Leverage 12.56% 4.00% 5.00%
The capital ratios of all the subsidiary banks, on an individual basis, were
well in excess of the applicable minimum regulatory capital ratio requirements
at September 30, 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 subsidiary 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.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 130 defines comprehensive income as the change in equity
(net assets) of a business enterprise during a period from transactions and
other events and circumstances from non owner sources. The Statement requires
comprehensive income to be reported in a financial statement that is displayed
with the same prominence as other financial statements. This Statement is
effective for fiscal years beginning after December 15, 1997. The Company does
not expect the implementation of this Statement to have a material effect on the
consolidated financial statements.
SFAS No. 131 changes the way public companies report information about segments
of their business in their annual financial statements and requires them to
report selected segment information in their quarterly report to shareholders.
This Statement requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and measuring
their performance. This Statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the implementation of this
Statement to have a material effect on the consolidated financial statements.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included herein will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the forward-looking
statements include, but are not limited to: economic conditions (both generally
and more specifically in the markets in which the Company and its subsidiaries
operate); competition for the Company's customers from other providers of
financial services; government legislation and regulation (which changes from
time to time and over which the Company has no control); changes in interest
rates; material unforeseen changes in the liquidity, results of operations, or
financial condition of the Company's customers; and other risks detailed in the
Company's filings with the Securities and Exchange Commission, all of which are
difficult to predict and many of which are beyond the control of the Company.
Part II
ITEM 5 - OTHER INFORMATION
On October 27, 1997 the Company announced an increase in their quarterly
dividend from forty-one cents per share to forty-eight cents per share, which
represents an increase of 17.1%. Holders of record of the Company's stock as of
December 1, 1997 will be paid on January 1, 1998. The action to increase the
dividend was taken at the Board of Director's meeting on October 27, 1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) List of Exhibits.
27 Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter.
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: 11/11/97 /s/ Charles S. Boyd
Charles Scott Boyd,
President and CEO (Principal Executive Officer)
Date: 11/10/97 /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
September 30, 1997 financial statements and is qualified in its entirety by
reference to such financial statements.
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