UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 St.
Frankfort, Kentucky 40601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502)227-1600
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.25 per share Par Value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 1, 1997 was $153,676,521.
As of March 1, 1997, there were 3,794,482 shares issued and outstanding.
Documents incorporated by reference:
Form 8-K, Current Report, as filed with the Commission on March 7, 1997 is
incorporated by reference in Part II, Item 9.
Proxy Statement for the annual meeting of shareholders scheduled to be held
May 13, 1997 - portions of which are incorporated by reference in Part III.
An index of exhibits filed with this Form 10-K can be found on page 53.
FARMERS CAPITAL BANK CORPORATION
FORM 10-K
INDEX
Page
Part I
Item 1 - Business 4
Item 2 - Properties 9
Item 3 - Legal Proceedings 10
Item 4 - Submission of Matters to a Vote of Security Holders 12
Part II
Item 5 - Market for Registrant's Common Equity and Related
Shareholder Matters 12
Item 6 - Selected Financial Data 14
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8 - Financial Statements and Supplementary Data 28
Item 9 - Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 49
Part III
Item 10 - Directors and Executive Officers of the Registrant 50
Item 11 - Executive Compensation 50
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 50
Item 13 - Certain Relationships and Related Transactions 50
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 51
Signatures 52
Index of Exhibits 53
PART I
Item 1 - Business
Organization
Farmers Capital Bank Corporation ("the Registrant") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, and was
organized on October 28, 1982, under the laws of the Commonwealth of Kentucky.
Its subsidiaries provide a wide range of banking and bank-related services to
customers throughout Kentucky. The bank subsidiaries owned by the Registrant
are Farmers Bank & Capital Trust Company ("Farmers Bank"), Frankfort, Kentucky;
United Bank & Trust Co. ("United Bank"), Versailles, Kentucky; Lawrenceburg
National Bank ("Lawrenceburg Bank"), Lawrenceburg, Kentucky; First Citizens
Bank, Hardin County, Incorporated ("First Citizens Bank"), Elizabethtown,
Kentucky; Farmers Bank and Trust Company ("Farmers Georgetown Bank"),
Georgetown, Kentucky; and Horse Cave State Bank ("Horse Cave Bank"), Horse Cave
Kentucky. The Registrant also owns two non-bank subsidiaries; FCB Services,
Inc. ("FCB Services"), Frankfort, Kentucky and Farmers Capital Insurance Company
("Farmers Insurance"), Frankfort, Kentucky. As of December 31, 1996, the
Registrant had $925 million in consolidated assets.
Farmers Bank, originally organized in 1850, is a state chartered bank engaged in
a wide range of commercial and personal banking activities, which include
accepting savings, time and demand deposits; making secured and unsecured loans
to corporations, individuals and others; providing cash management services to
corporate and individual customers; issuing letters of credit; renting safe
deposit boxes; and providing funds transfer services. The bank's lending
activities include making commercial, construction, mortgage and personal loans
and lines of credit. The bank serves as an agent in providing credit card
loans. It acts as trustee of personal trusts, as executor of estates, as
trustee for employee benefit trusts, as registrar, transfer agent and paying
agent for bond issues. Farmers Bank also acts as registrar, transfer agent and
paying agent for the Registrant's stock issue. Farmers Bank is the general
depository for the Commonwealth of Kentucky and has been for more than 70 years.
Farmers Bank is the largest bank in Franklin County. It conducts business in
its principal office and four branches within Frankfort, the capital of
Kentucky. Franklin County is a diverse community, including government,
commerce, finance, industry, medicine, education and agriculture. The bank also
serves many individuals and corporations throughout Central Kentucky. On
December 31, 1996, it had total assets of $405 million, including loans of $234
million. On the same date, total deposits were $359 million and shareholders'
equity totaled $36 million.
Farmers Bank had three subsidiaries during the year: Farmers Bank Realty
Company ("Realty"); Money One Credit of Kentucky, Inc. ("Money One"); and
Leasing One Corporation ("Leasing One"). Farmers Bank, Realty and Money One,
Inc. owned a partnership - Money One Credit Company ("MOCC") prior to its
dissolution at the end of 1996. Farmers Bank also participates in a joint
venture - Frankfort ATM, Ltd. ("ATM").
Realty was incorporated in 1978 for the purpose of owning certain real estate
used by the Registrant and Farmers Bank in the ordinary course of business.
Realty had total assets of $3.5 million on December 31, 1996.
Money One was incorporated in 1989 and until January 1, 1993, was a direct
subsidiary of the Registrant. It managed the consumer finance company, MOCC.
At December 31, 1996 it had $824 thousand in assets. As of the close of
business on December 31, 1996, Money One was dissolved and all assets were
distributed to Farmers Bank, it sole shareholder.
MOCC was established on June 1, 1994. It was a partnership engaged in consumer
lending activities under Chapter 288 of the Kentucky Revised Statutes. As
stated earlier, the partners included Farmers Bank, Realty and Money One. Prior
to May 31, 1996, MOCC had fourteen offices throughout Kentucky. On May 31,
1996, MOCC sold its entire loan portfolio and fixed assets to an unrelated third
party. At the close of business on December 31, 1996 its total remaining assets
of $11.0 million were distributed to its partners and the company dissolved.
Leasing One was incorporated in August, 1993 to operate as a commercial
equipment leasing company. It is located in Frankfort, but conducts business in
Ohio, Indiana, Tennessee and Kentucky. At year end it had total assets of $15.7
million.
A fourth subsidiary, Farmers Financial Services Corporation ("FFSC"), was in
existence for the first three quarters of 1995. FFSC was incorporated in 1985
in order to enter into a partnership with several other banks to form a
statewide electronic network. The partnership, known as "Transaction Services
Company", supported an automated teller machine network (Quest) with machines
throughout Kentucky and Indiana as well as point-of-sale terminals in retail
stores. With the termination of the "Quest" network, the parternship known as
"Transaction Services Company" was also terminated. As a result, FFSC was
dissolved as of September 27, 1995.
Farmers Bank has a 50% interest in ATM, a joint venture for the purpose of
ownership of automatic teller machines in the Frankfort area. State National
Bank, a Frankfort bank not otherwise associated with the Registrant, also has a
50% interest in ATM.
On February 15, 1985, the Registrant acquired United Bank, a state chartered
bank originally organized in 1880. It is engaged in a general banking business
providing full service banking to individuals, businesses and governmental
customers. It conducts business in its principal office and two branches in
Woodford County, Kentucky. On February 3, 1997, it purchased a building in
Midway for the purpose of moving its existing Midway branch. The new building
will allow the bank to offer drive thru services to its customers. United Bank
is the second largest bank in Woodford County with total assets of $101 million
and total deposits of $90 million at December 31, 1996.
Pursuant to Parity Letter number Two, issued by the Kentucky Department of
Financial Institutions, the Board of Directors authorized (during 1996) the
management of United Bank to investigate the merits of establishing and
operating an insurance agency at the Midway Branch.
On June 28, 1985, the Registrant acquired Lawrenceburg Bank, a national
chartered bank originally organized in 1885. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. It conducts business in its principal office and one
branch in Anderson County, Kentucky. Lawrenceburg Bank is the largest bank in
Anderson County with total assets of $98 million and total deposits of $89
million at December 31, 1996.
On March 31, 1986, the Registrant acquired First Citizens Bank, a state
chartered bank originally organized in 1964. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. It conducts business in its principal office and four
branches in Hardin County, Kentucky. First Citizens Bank is the second largest
bank domiciled in Hardin County, with total assets of $119 million and total
deposits of $99 million at December 31, 1996.
On June 30, 1986, the Registrant acquired Farmers Georgetown Bank, a state
chartered bank originally organized in 1850. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. It conducts business in its principal office and three
branches in Scott County, Kentucky. During 1996, Farmers Georgetown Bank
received notice from the State of Kentucky that it would exercise its power of
eminent domain at the site of the downtown Georgetown branch. Management is
currently seeking alternative sites to relocate this branch, which is expected
to be completed in 1997. Farmers Georgetown Bank is the largest bank in Scott
County with total assets of $123 million and total deposits of $111 million at
December 31, 1996.
On June 15, 1987, the Registrant acquired Horse Cave Bank, a state chartered
bank originally organized in 1926. It is engaged in a general banking business
providing full service banking to individuals, businesses and governmental
customers. It conducts business in its principal office and one branch in Hart
County, Kentucky. On December 31, 1996, it filed an application with the
Kentucky Department of Financial Institutions under Parity Letter number One to
move its charter to Glasgow, Kentucky. Once regulatory approval is granted,
Horse Cave Bank will maintain a branch in Horse Cave. Horse Cave Bank is the
largest bank in Hart County with total assets of $77 million and total deposits
of $66 million at December 31, 1996.
Subsidiary banks make first and second residential mortgages secured by the real
estate not exceeding 90% loan to value without seeking third party guarantees.
Commercial real estate loans are made in the low to moderate range, secured by
the real estate not exceeding 80% loan to value. Other commercial loans are
asset based loans secured by equipment and lines of credit secured by
receivables. Secured and unsecured consumer loans generally are made for
automobiles and other motor vehicles. In most cases loans are restricted to the
subsidiaries' general market area.
Prior to the sale of its loans and fixed assets, the consumer finance subsidiary
made secured and unsecured installment loans for various purposes. The leasing
subsidiary makes secured equipment leases to commercial and municipal entities
in Kentucky, Indiana, Ohio and Tennessee.
FCB Services, organized in 1992, provides data processing services and support
for the Registrant and its subsidiaries. It is located in Frankfort, Kentucky.
During 1994, FCB Services began performing data processing services for
nonaffiliated banks.
Farmers Insurance was organized in 1988 to engage in insurance activities
permitted to the Registrant by federal and state law. This corporation has had
no activity to date.
Supervision and Regulation
The Registrant, as a registered bank holding company, is restricted to those
activities permissible under the Bank Holding Company Act of 1956, as amended,
and is subject to actions of the Board of Governors of the Federal Reserve
System thereunder. It is required to file various reports with the Federal
Reserve Board, and is subject to examination by the Board.
The Registrant's state bank subsidiaries are subject to state banking law and to
regulation and periodic examinations by the Kentucky Department of Financial
Institutions. Lawrenceburg Bank, a national bank, is subject to similar
regulation and supervision by the Comptroller of the Currency under the National
Bank Act and the Federal Reserve System under the Federal Reserve Act.
Deposits of the Registrant's subsidiary banks are insured by the Federal Deposit
Insurance Corporation Bank Insurance Fund, which subjects the banks to
regulation and examination under the provisions of the Federal Deposit Insurance
Act.
The operations of the Registrant and its subsidiary banks also are affected by
other banking legislation and policies and practices of various regulatory
authorities. Such legislation and policies include statutory maximum rates on
some loans, reserve requirements, domestic monetary and fiscal policy, and
limitations on the kinds of services which may be offered.
The Bank Holding Company Act formerly prohibited the Federal Reserve Board from
approving an application from a bank holding company to acquire shares of
another bank across its own state lines. However, effective September 1995, new
legislation abolished those restrictions and now allows bank holding companies
to acquire shares of out of state banks, subject to certain conditions.
Currently, the Company has no plans to purchase shares of an out of state bank.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company's controlled insured depository institutions are liable
for any loss incurred by the Federal Deposit Insurance Corporation in connection
with the default of or any FDIC assisted transaction involving an affiliated
insured bank.
Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), the
FDIC was required to establish a risk-based assessment system for insured
depository institutions which became effective January 1, 1994. The FDIC has
adopted a risk-based deposit insurance assessment system under which the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC which is determined
by the institution's capital level.
Under FDICIA, the federal banking regulators are required to take prompt
corrective action if an institution fails to satisfy certain minimum capital
requirements, including a leverage limit, a risk-based capital requirement, and
any other measure deemed appropriate by the federal banking regulators for
measuring the capital adequacy of an insured depository institution. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to be undercapitalized.
The purpose of the Community Reinvestment Act (CRA) is to encourage banks to
respond to the credit needs of the communities they serve, including low and
moderate income neighborhoods. CRA states that banks should accomplish this
while still preserving the flexibility needed for safe and sound operations. It
is designed to increase the bank's sensitivity to investment opportunities which
will benefit the community. Of the Company's six subsidiary banks, two have an
outstanding CRA rating and four have a satisfactory rating.
References under the caption "Supervision and Regulation" to applicable statutes
and regulations are brief summaries of portions thereof which do not purport to
be complete and which are qualified in their entirety by reference thereto.
Competition
The Corporation and its subsidiaries compete for banking business with various
types of businesses other than commercial banks and savings and loan
associations. These include, but are not limited to, credit unions, mortgage
lenders, finance companies, insurance companies, stock and bond brokers,
financial planning firms, and department stores which compete for one or more
lines of banking business. The banks also compete for commercial and retail
business not only with banks in Central Kentucky, but with banking organizations
from Ohio, Indiana, Tennessee and Pennsylvania which have banking subsidiaries
located in Kentucky and may possess greater resources than the Corporation.
The primary areas of competition pertain to quality of services, interest rates
and fees.
The business of the Registrant is not dependent upon any one customer or on a
few customers, and the loss of any one or a few customers would not have a
materially adverse effect on the Registrant.
No material portion of the business of the Registrant is seasonal. No material
portion of the business of the Registrant is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of the government,
though certain contracts are subject to such renegotiation or termination.
The Registrant is not engaged in operations in foreign countries.
Employees
As of December 31, 1996, the Registrant and its subsidiaries had 444 full-time
equivalent employees. Employees are provided with a variety of employee
benefits. A retirement plan, a profit-sharing (401K) plan, group life
insurance, hospitalization, dental and major medical insurance are available to
eligible personnel. The employees are not represented by a union. Management
and employee relations are good.
Item 2 - Properties
All of the Registrant's properties are owned or leased by the Banks or their
subsidiaries.
Farmers Bank and its subsidiary, Realty, currently own or lease nine buildings.
Farmers Bank operates five branches, two of which it owns and three of which it
leases. United Bank owns its two branch offices and approximately 52% of a
condominiumized building which houses its main office. Lawrenceburg Bank owns
its main office and its branch office. First Citizens Bank owns its main office
and two of its four branches. The other two branch locations of First Citizens
Bank are leased facilities, one of which is being located in a grocery store.
Farmers Georgetown Bank owns its main office, another branch in downtown
Georgetown and one in Stamping Ground, Kentucky. Farmers Georgetown Bank's
third branch is located in a leased facility. Horse Cave Bank owns the building
where it is headquartered. In the first quarter of 1991, Horse Cave Bank opened
a branch in leased facilities in Munfordville, Kentucky.
Prior to the sale of its entire loan portfolio and fixed assets on May 31, 1996,
MOCC operated out of fourteen leased offices in fourteen cities within Kentucky.
Item 3 - Legal Proceedings
Farmers was named, on September 10, 1992, as a defendant in Case No. 92CI05734
in Jefferson Circuit Court, Louisville, Kentucky, Earl H. Shilling et al. v.
Farmers Bank & Capital Trust Company. The named plaintiffs purported to
represent a class consisting of all present and former owners of the County of
Jefferson, Kentucky Nursing Home Refunding Revenue Bonds (Filson Care Home
Project) Series 1986A (the "Series A Bonds") and County of Jefferson, Kentucky
Nursing Home Improvement Bonds (Filson Care Home Project) Series 1986B (the
"Series B Bonds") (collectively the "Bonds"). The plaintiffs alleged that the
class which they purported to represent has been damaged in the approximate
amount of $2,000,000 through the reduction in value of the Bonds and the
collateral security therefore, and through the loss of interest on the Bonds
since June 1, 1989, as a result of alleged negligence, breach of trust, and
breach of fiduciary duty on the part of Farmers Bank in its capacity as
indenture trustee for the Bonds. A subsequent amendment to the complaint
further alleges that Farmers Bank conspired with and aided and abetted the
former management of the Filson Care Homein its misappropriation of the nursing
home's revenues and assets to the detriment of the Bondholders and in order to
unlawfully secure and benefit Farmers Bank. The amendment seeks unspecified
punitive damages against Farmers Bank. On July 6, 1993, the Circuit Court
denied the plaintiff's motion to certify the case as a class action on behalf of
all present and former owners of the Bonds. Under that ruling, the action may
be maintained only with respect to the individual claims of the named plaintiffs
and any other Bondholders whom the court might allow to join in the action with
respect to their own individual claims. Since the denial of class
certifications, the complaint has been amended twice to join additional
Bondholders as plaintiffs. The 42 existing plaintiffs claim to hold Bonds
having an aggregate face value of $470,000. The case is presently in the
process of discovery. Farmers Bank believes that the claims of the plaintiffs
are unfounded and totally without merit, and Farmers Bank intends to vigorously
contest any further proceedings in the case.
Two of the original named plaintiffs in the case before the Circuit Court filed
a similar action, Earl H. Schilling et al v. Farmers Bank & Capital Trust
Company, on July 7, 1992 in the United State District Court for the Western
District of Kentucky at Louisville, Case No. C-920399 L-M. That action has been
dismissed without prejudice on the grounds that the plaintiffs did not appear to
be able to establish federal jurisdiction.
On November 27, 1995, one of the Registrant's subsidiaries, Farmers Bank &
Capital Trust co. ("Farmers Bank') filed suit in the Circuit Court for Franklin
County, Kentucky against Travel Professionals of Frankfort, Inc. and Travel
Professionals of Scott County, Inc. (the "TPI Companies") to collect five (5)
loans totaling approximately $1,158,572 plus interest, costs and attorney's
fees. By an amended complaint filed in 1996, alleging breach of contract, fraud
and breach of duty of due care and diligence, the plaintiff claimed additional
damages in the approximate amount of $1,206,342 against the various defendants.
In addition to the TPI Companies, other named defendants were Charles O. Bush,
Sr., a director of the bank (by virtue of his directorship and of certain
guarantees) and two of his children, Charles O. Bush, Jr. and Karen Wilhelm and
their respective spouses, Sandra Bush and David Wilhelm, (collectively, the
"Bush Family Members"). In addition, Ray Godbey and Virginia Godbey, officers
of the Corporation were joined as defendants. Each of the defendants has filed
an answer and counterclaim denying liability to Farmers Bank and asserting
various claims for damages against the Bank. The registrant believes that the
defenses and claims asserted by the defendants are without merit and Farmers
Bank has denied any liability to the defendants. The litigation presently is in
the discovery phase and is being vigorously defended.
The Registrant's Georgetown, Kentucky affiliate, Farmers Georgetown Bank, and
its Executive Vice President, have been named defendants in a civil action
brought on August 1, 1994 by a loan customer of the Bank, in which the customer
alleges (1) fraud, (2) breach of good faith and fair dealing, (3) disclosure of
false credit information (defamation) and (4) outrageous conduct. As earlier
reported, the initial amount in controversy for the first three counts was
unspecified. The amount originally sought as punitive damages for outrageous
conduct was $10,000,000. By order of the Scott County Circuit Court,
Georgetown, Kentucky, the plaintiffs were required to quantify the amounts in
controversy. For the count of fraud the plaintiffs seek $50,000; for the count
of breach of good faith and fair dealing the plaintiff seeks $12,900,000; for
the count of defamation the plaintiffs seek $14,800,000 plus an estimated
$75,000 in legal costs. Further the amount now sought as punitive damages is
$21,000,000.
The conduct complained about in counts 1 and 2 involves former officers of
Farmers Georgetown Bank. The Bank at this time has had the opportunity to
examine those former officers knowledge of the events alleged to have taken
place and believes there is no merit to the allegations. The Farmers Georgetown
Bank also believes that there is no merit to the allegations in counts 3 and 4
and intends to vigorously defend all claims.
The case was set for trial in both November 1995 and February 1996, but was
continued the second time to September 1996. In September of 1996, the court
granted the defendant's motions for summary judgements on all counts of the
complaint. The plaintiff's appealed to the Court of Appeals of Kentucky and
that appeal is now pending.
Management believes the previously mentioned actions are without merit, that in
certain instances its actions or omissions were pursuant to the advice of
counsel, or that the ultimate liability, if any, resulting from one or more of
the claims will not materially affect the Registrant's consolidated financial
position or results of operations or cash flows, although resolution in any year
or quarter could be material for that period.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters
The Registrant's stock is traded on the National Association of Security Dealers
Automated Quotation System (NASDAQ) SmallCap Market tier of the NASDAQ Stock
Market, with sales prices reported under the symbol: FFKT. The amount of
dividends per share declared by the Registrant during the last two calendar
years is also included below:
Dividends
Stock Prices High Low Declared
4th Quarter, 1996 $40.75 $39.25 $0.41
3rd Quarter, 1996 40.50 34.50 0.36
2nd Quarter, 1996 41.50 33.50 0.36
1st Quarter, 1996 42.50 38.50 0.36
4th Quarter, 1995 $43.50 $37.00 $0.36
3rd Quarter, 1995 39.50 33.00 0.33
2nd Quarter, 1995 37.00 32.50 0.33
1st Quarter, 1995 38.00 35.50 0.33
As of January 1, 1997, there were 864 shareholders of record. This figure does
not include individual participants in security position listings.
Payment of dividends by the Registrant's subsidiary banks is subject to certain
regulatory restrictions as set forth in national and state banking laws and
regulations. At December 31, 1996, combined retained earnings of the subsidiary
banks were approximately $39,378,000 of which $7,742,000 was available for the
payment of dividends in 1997 without obtaining prior approval from bank
regulatory agencies.
Stock Transfer Agent and Registrar:
Farmers Bank & Capital Trust Co.
P.O. Box 309
Frankfort, Kentucky 40602
The Registrant offers shareholders automatic reinvestment of dividends in shares
of stock at the market price without fees or commissions. For a description of
the plan and an authorization card, contact the Registrar above.
NASDAQ Market Makers:
J.J.B. Hilliard, W.L. Lyons, Inc. Herzog, Heine, Geduld, Inc.
502/588-8400 or 800/221-3600
800/444-1854
J.C. Bradford and Co., Inc. PaineWebber Incorporated
800/443-8749 800/222-1448
Item 6 - Selected Financial Data
December 31
(In thousands, except per share data)
1996 1995 1994 1993 1992
Interest income $ 67,485 $ 67,261 $ 57,750 $ 54,612 $ 60,278
Interest expense 28,703 28,115 21,586 21,768 27,940
Net interest income 38,782 39,146 36,164 32,844 32,338
Provision (credit) for loan losses
4,162 3,727 2,125 (2,026) 3,236
Net income 12,656 10,389 10,250 10,804 6,317
Per shre data
Net income 3.29 2.69 2.65 2.79 1.63
Cash dividends declared 1.49 1.35 1.23 1.11 1.08
Book value 28.86 27.14 25.88 24.60 22.91
Total shareholders' equity 109,596 104,929 100,064 95,091 88,579
Total assets 925,319 906,113 851,703 794,269 820,991
Long term debt 3,571 3,886 4,865 2,695 159
Percentage of net income to:
Average shareholders' equity (ROE)
11.80% 10.20% 10.55% 11.86% 7.16%
Average total assets (ROA) 1.41 1.21 1.22 1.33 .78
Percentage of dividends declared
to net income 45.21 50.24 46.40 39.78 66.26
Percentage of average shareholders' equity
to average total assets 11.94 11.81 11.57 11.22 10.85
Weighted average shares outstanding
3,842 3,866 3,866 3,866 3,866
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
Farmers Capital Bank Corporation (the "Company') recorded net income of $12.7
million or $3.29 per share for 1996, up 21.8% from $10.4 million or $2.69 per
share reported for 1995. The increase is primarily due to the gain on the sale
of loans of the Company's consumer finance subsidiary ("Money One") during the
second quarter of 1996. The sale of Money One loans affected consolidated
results in a number of ways. First, the pre-tax gain of $3.2 million increased
earnings for the year. Second, the Company experienced an immediate decrease in
net loans of approximately $11.5 million. By year end 1996, loan volume had
grown enough to replace the loans sold and to increase net loans by
approximately $15 million over the prior year. The impact of the gain on sale
of loans can also be seen in the Company's performance ratios. Return on
average assets increased from 1.21% to 1.41% and return on average equity
increased from 10.20% to 11.80%.
Interest Income
Total interest income on a tax equivalent basis was $69.1 million, up $438
thousand from 1995. The largest contributors to the increase were taxable and
nontaxable investment securities. Interest on taxable and nontaxable investment
securities was positively impacted by increases both in volume and in rate.
Average taxable investment securities increased $19.7 million or 14.5%, while
the average rate earned increased from 5.82% to 5.86%. The average balance of
nontaxable investment securities increased $11.1 million or 21.9% while the
average rate earned increased from 6.64% to 6.70%
Interest on time deposits with banks, federal funds sold, and securities
purchased under agreement to resell decreased $328 thousand to $2.7 million.
Interest and fees on loans decreased $1.2 million or 2.2%. Although average
loans increased $5.4 million or 1.0%, the average rate earned on loans decreased
32 basis points from 10.05% to 9.73%. The decline in the average rate earned on
loans is partially due to the decline in higher yielding consumer loans as the
consolidated loan portfolio increased in commercial loans and leases.
Interest Expense
Total interest expense increased $588 thousand or 2.1% from 1995. The increase
is primarily due to increases in the volume of time deposits and the rate paid
on time deposits. Interest on interest bearing demand deposits decreased $104
thousand due to a 19 basis point decline in the average rate paid in spite of a
$12.7 million, or 5.2%, increase in the average balance. Interest expense for
savings deposits was similar. A decline of $57 thousand was caused by a 23
basis point decline in rate in spite of a 4.0% increase in the average balance
on savings deposits. The average balance of time deposits increased $15.2
million or 4.9% and the average rate paid increased slightly from 5.55% to
5.61%. The result is a $1.1 million increase in interest expense on time
deposits.
Interest on securities sold under agreements to repurchase declined $270
thousand due to slight declines in both volume and rate. Interest on other
borrowed funds also decreased slightly, $38 thousand, due primarily to a decline
in volume as the Company was able to use increasing deposits at lower rates as a
cheaper source of funds.
Net interest income is the most significant component of the Company's earnings.
Net interest income is the excess of the interest income earned on assets over
the interest paid for funds to support those assets. The following table
represents the major components of interest earning assets and interest bearing
liabilities on a tax equivalent basis (TE) where tax exempt income is adjusted
upward by an amount equivalent to the federal income taxes that would have been
paid if the income had been fully taxable (assuming a 34% tax rate).
<TABLE>
Distribution of Assets, Liabilities and Shareholders' Equity:
Interest Rates and Interest Differential (In thousands)
<CAPTION>
December 31, 1996 1995 1994
Average Average Average Average Average Average
Balances Interest Rate Balances Interest Rate Balances Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Investment securities
Taxable $155,738 $9,121 5.86% $136,028 $ 7,923 5.82% $126,772 $ 6,106 4.82%
Nontaxable 1 61,981 4,154 6.70 50,852 3,376 6.64 50,476 3,447 6.83
Time deposits with banks,
federal funds sold and
securities purchased
under agreements
to resell 51,619 2,714 5.26 51,752 3,042 5.88 56,052 2,398 4.28
Loans 1,2,3 546,040 53,140 9.73 540,632 54,350 10.05 511,492 47,301 9.25
Total earning assets 815,378 69,129 8.48 779,264 68,691 8.81 744,792 59,252 7.96
Less allowance
for loan losses 8,610 8,774 8,982
Total earning assets, net
of allowance for loan
losses 806,768 770,490 735,810
Non-earning assets
Cash and due from banks 59,353 57,545 70,433
Bank premises and other
equipment 19,614 20,122 19,950
Other assets 12,874 14,001 13,362
Total assets $898,609 $862,158 $839,555
Interest bearing liabilities
Deposits
Interest bearing demand $258,606 7,175 2.77 $245,926 7,279 2.96 $247,554 6,742 2.72
Savings 55,529 1,646 2.96 53,417 1,703 3.19 55,853 1,612 2.89
Time 326,844 18,349 5.61 311,668 17,292 5.55 274,812 11,817 4.30
Securities sold under
agreements to repurchase 25,706 1,314 5.11 28,889 1,584 5.48 33,348 1,209 3.63
Other borrowed funds 3,719 219 5.89 4,444 257 5.78 3,320 206 6.20
Total interest bearing
liabilities 670,404 28,703 4.28 644,344 28,115 4.36 614,887 21,586 3.51
Non-interest bearing liabilities
Commonwealth of Kentucky
deposits 25,713 26,093 32,419
Demand deposits -
other deposits 86,486 84,666 89,073
Other liabilities 8,720 5,212 6,059
Total liabilities 791,323 760,315 742,438
Shareholders' equity 107,286 101,843 97,117
Total liabilities and
shareholders' equity $898,609 $862,158 $839,555
Net interest income (TE) 40,426 40,576 37,666
TE basis of adjustment (1,644) (1,430) (1,502)
Net interest income $38,782 $39,146 $36,164
Net interest spread (TE) 4.20% 4.45% 4.45%
Net interest margin (TE) 4.96% 5.21% 5.06%
</TABLE>
1 Income and yield stated at a fully tax equivalent basis (TE), using a 34% tax
rate.
2 Loan balances include principal balances on non-accrual loans.
3 Loan fees included in interest income amounted to $1,977,000, $1,781,000, and
$1,731,000 in 1996, 1995 and 1994, respectively.
Net Interest Income
Net interest income (TE) decreased $150 thousand. Interest income increased
$438 thousand, while interest expense increased by $588 thousand. The change in
the spread between rates earned and paid and net interest margin are summarized
below:
1996 1995 % change
Spread between rates earned and paid 4.20% 4.45% (5.62)%
Net interest margin 4.96% 5.21% (4.80)%
The declines in the net interest spread and the net interest margin are
partially due to a decline in higher yielding consumer loans. As seen in the
Interest Rate and Interest Differential table, slightly less interest income was
earned in 1996 on a larger average loan balance when compared to 1995.
The following table is an analysis of the change in net interest income:
<TABLE>
Analysis of Changes in Net Interest Income (tax equivalent basis):
<CAPTION>
Variance Variance
Variance Attributed to Variance Attributed to
(In thousands) 1996/1995 1 Volume Rate 1995/1994 1 Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest income
Taxable investment securities $1,198 $1,154 $ 44 $1,817 $ 470 $1,347
Nontaxable investment securities 2 778 747 31 (71) 26 (97)
Time deposits with banks, federal
funds sold and securities
purchased under agreement
to resell (328) (8) (320) 644 (172) 816
Loans 2 (1,210) 540 (1,750) 7,049 2,803 4,246
Total interest income 438 2,433 (1,995) 9,439 3,127 6,312
Interest expense
Interest bearing demand deposits (104) 365 (469) 537 (44) 581
Savings deposits (57) 66 (123) 91 (68) 159
Time deposits 1,057 850 207 5,475 1,728 3,747
Securities sold under agreements
to repurchase (270) (168) (102) 375 (145) 520
Other borrowed funds (38) (43) 5 51 66 (15)
Total interest expense 588 1,070 (482) 6,529 1,537 4,992
Net interest income $ (150) $1,363 $(1,513) $2,910 $1,590 $1,320
Percentage change 100.0% (908.7)% 1,008.7% 100% 54.6% 45.4%
</TABLE>
1 The changes which are not solely due to rate or volume are allocated on a
percentage basis, using the absolute values of rate and volume variances as a
basis for allocation.
2 Income stated at fully tax equivalent basis using a 34% tax rate.
As the table indicates, the decrease is nearly equally attributed to an increase
in volume and a decrease in the net interest spread.
Asset Quality
The provision for loan losses represents charges made to earnings to maintain an
adequate allowance. Each subsidiary determines its level for the allowance and
maintains it at an amount believed to be sufficient to absorb possible losses
that may be experienced in the credit portfolio. The following factors are used
in establishing an appropriate allowance:
A careful assessment of the financial condition of individual borrowers
A realistic determination of the value and adequacy of underlying collateral
A thorough review of historical loss experience
The condition of the local economy
A comprehensive analysis of the levels and trends of loan categories
A review of delinquent and criticized loans
The provision for loan losses increased $435 thousand compared to 1995. The
Company had net charge-offs of $3.9 million, down $251 thousand from $4.1
million in 1995. The allowance was 1.57% of net loans, relatively unchanged
from 1.56% at the end of 1995. 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.
The table below summarizes the loan loss experience for the past five years.
Year Ended December 31,
(In thousands) 1996 1995 1994 1993 1992
Balance of allowance for
loan losses at
beginning of period $ 8,472 $ 8,889 $ 8,547 $ 8,261 $ 7,917
Loans charged off:
Commercial, financial
and agricultural 1,609 2,390 741 1,826 2,427
Real estate 920 118 416 638 611
Installment loans to
individuals 1,862 2,376 1,467 1,483 1,233
Leasing financing 18
Total loans charged off 4,409 4,884 2,624 3,947 4,271
Recoveries of loans previously
charged off:
Commercial, financial
and agricultural 144 192 193 343 651
Real estate 38 146 230 5,409 371
Installment loans to
individuals 334 402 418 507 357
Total recoveries 516 740 841 6,259 1,379
Net loans charged off
(recovered) 3,893 4,144 1,783 (2,312) 2,892
Additions to allowance
charged (credited)
to expense 4,162 3,727 2,125 (2,026) 3,236
Balance at end of period $ 8,741 $ 8,472 $ 8,889 $ 8,547 $ 8,261
Average loans
net of unearned income $ 546,040 $ 540,632 $ 511,492 $ 467,738 $ 473,271
Ratio of net charge offs
(recoveries) during period
to average loans, net
of unearned income .71% .77% .35% (.49)% .61%
The following is an estimate of the breakdown of the allowance for loan losses
by type for the date indicated:
Year Ended December 31, (In thousands) 1996 1995 1994 1993 1992
Commercial, financial and
agricultural $3,806 $4,138 $6,427 $6,500 $6,512
Real estate 2,974 1,928 1,027 1,004 805
Installment loans to individuals 1,304 2,176 1,264 1,035 944
Direct lease financing 657 230 171 8
$8,741 $8,472 $8,889 $8,547 $8,261
Noninterest Income
Noninterest income for 1996 reached $15.0 million, up $3.3 million or 27.6% from
$11.7 million in 1995. The increase is due primarily to the gain on sale of
loans of Money One, the Company's consumer finance subsidiary. Service charges
on deposits and trust fees also experienced moderate growth.
Noninterest Expense
Noninterest expense decreased $626 thousand to $31.8 million. The decline is a
result of a $109 thousand decrease in equipment expense and an $815 thousand
decrease in FDIC insurance. The FDIC lowered premium rates in 1995 from $.23
per $100 to $.04 per $100. Only a nominal premium was charged in 1996. Rates
are expected to be approximately $.013 per $100 in 1997. These declines were
partially offset by a $458 thousand, or 2.7% increase in salaries and benefits
and slight increases in occupancy expense and bank franchise tax. Management
implemented a self-insured medical plan effective January 1, 1996 that has
helped to control rising costs. The Commonwealth of Kentucky passed new
statutes revising the bank franchise tax during 1996 which will increase that
expense in 1997.
Income Tax
Income tax expense increased $806 thousand, or 18.4% due to the increase in
earnings. The effective tax rate for 1996 was 29.0%, down 60 basis points from
last year.
Financial Condition
On December 31, 1996, assets were $925 million, an increase of $19 million or
2.1% from year end 1995. Average assets for 1996 increased $36 million, or 4.2%
to $899 million. Earning assets, primarily loans and investments, averaged $815
million, up $36 million or 4.6%.
Loans
As of December 31, 1996, net loans totaled $558 million, up $15 million or 2.8%
from $543 million in the prior year. Although the Company's loan balance
decreased by $11.5 million around mid year due to the sale of Money One's loans,
the Company's affiliate banks made up for this decline by year end. The effect
of these changes can be seen in the loan portfolio composition table.
Installment loans decreased $14 million or 13.9% primarily as a result of the
sale of Money One's loans and cessation of operations. All other loan
categories increased: direct leasing by $7 million or 34.5% and mortgage
lending by $12 million or 4.2%.
<TABLE>
The composition of the loan portfolio is summarized in the table below:
<CAPTION>
Year Ended December 31,
(In thousands) 1996 % 1995 % 1994 % 1993 % 1992 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $120,256 21.2% $114,412 20.6% $115,068 21.1% $108,755 22.2% $111,089 23.6%
Real estate - construction 27,098 4.8 26,380 4.8 28,755 5.3 21,772 4.4 18,577 3.9
Real estate - mortgage 305,229 53.8 292,913 52.8 279,264 51.3 262,074 53.5 247,054 52.5
Installment 85,720 15.1 99,571 17.9 107,450 19.7 95,544 19.5 93,676 19.9
Direct leasing 29,144 5.1 21,666 3.9 14,029 2.6 2,200 0.4 215 0.1
Total $567,447 100.0% $554,942 100.0% $544,566 100.0% $490,345 100.0% $470,611 100.0%
</TABLE>
The following table indicates the amount of loans (excluding real estate
mortgages, consumer loans and direct lease financing) outstanding at December
31, 1996, which, based on remaining scheduled repayments of principal, are due
in the periods indicated.
Maturing Within After One But After
(In thousands) One Year Within Five Years Five Years Total
Commercial, financial
and agricultural $ 96,908 $20,946 $2,402 $120,256
Real estate - construction 25,463 1,592 43 27,098
$122,371 $22,538 $2,445 $147,354
The table below shows the amount of loans (excluding real estate mortgages,
consumer loans and direct lease financing) outstanding at December 31, 1996,
which are due after one year classified according to sensitivity to changes in
interest rates.
Interest Sensitivity Fixed Variable
(In thousands) Rate Rate
Due after one but within five years $19,396 $3,142
Due after five years 2,356 89
$21,752 $3,231
Temporary Investments
Federal funds sold and securities purchased under agreement to resell are the
primary components of temporary investments. These funds help in the management
of liquidity and interest rate sensitivity. In 1996, temporary investments
averaged $52 million, unchanged from their average in 1995. Temporary
investment funds are reallocated as loan demand presents the opportunity.
Investment Securities
The majority of the investment security portfolio is comprised of U.S. Treasury
securities, Federal agency securities, tax-exempt securities, and mortgage-
backed securities. Total investment securities were $221 million on December
31, 1996, a decrease of $6 million, or 2.7% from year end 1995.
The funds made available from maturing or called bonds have been redirected to
fund new loan growth as needed. Remaining funds have been used to increase our
holding of tax-free obligations and mortgage-backed securities. Obligations of
states and political subdivisions are the primary means of managing the
Company's tax position. The alternative minimum tax is not expected to impact
the Company's ability to acquire tax-free obligations in the near future as they
become available at an attractive yield.
Available for sale securities and held to maturity securities were $109 million
and $112 million, respectively. Total investment securities averaged $218
million, an increase of $31 million, or 16.5% from year end 1995. Net
unrealized losses, net of tax effect, on available for sale securities, were
$362 thousand on December 31, 1996.
The following table summarizes the carrying values of investment securities on
December 31, 1996, 1995 and 1994. The investment securities are divided into
available for sale and held to maturity securities. Available for sale
securities are carried at the estimated fair value and held to maturity
securities are carried at amortized cost.
December 31,
(In thousands) 1996 1995 1994
Available Held to Available Held to Available Held to
for sale maturity for sale maturity for sale maturity
U.S. Treasury
securities $ 27,453 $ 2,000 $ 16,668 $ 15,994 $ 8,745 $ 45,559
Obligations of
other U.S.
Government
agencies 62,744 28,581 77,624 34,732 55,855 18,192
Obligations of
states and
political
subdivisions 62,839 54,696 51,095
Mortgage-backed
securities 15,329 14,680 10,251 13,151 4,819 5,131
Other securities 3,765 3,509 1,390 2,418 3,047 500
Total $109,291 $111,609 $105,933 $120,991 $72,466 $120,477
The following is an analysis of the maturity distribution and weighted average
interest rates of investment securities at December 31, 1996. For purposes of
this analysis, available for sale securities are stated at fair value and held
to maturity securities are valued at amortized cost.
<TABLE>
<CAPTION>
Within After One But After Five But After
Available for Sale One Year Within Five Years Within Ten Years Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $16,042 5.54% $11,411 5.55%
Obligations of other U.S.
Government agencies 33,401 5.11 29,343 5.64
Mortgage-backed securities 509 7.46 4,901 6.58 $6,103 5.42% $3,816 6.85%
Other securities 461 5.42 381 7.52 2,923 6.99
Total $50,413 5.27% $46,036 5.73% $6,103 5.42% $6,739 6.91%
</TABLE>
<TABLE>
<CAPTION>
Within After One But After Five But After
Held to Maturity One Year Within Five Years Within Ten Years Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 1,000 7.64% $ 1,000 5.53%
Obligations of other U.S.
Government agencies 9,000 6.23 17,331 5.94 $ 2,250 7.26%
States and political
subdivisions 9,097 6.70 34,963 7.03 16,963 7.22 $1,816 7.64%
Mortgage-backed securities 1,187 8.13 6,147 6.46 7,346 7.07
Other securities 288 5.15 1,771 5.90 1,450 7.16
Total $20,572 6.60% $61,212 6.60% $28,009 7.18% $1,816 7.64%
</TABLE>
The calculation of the weighted average interest rates for each category is
based on the weighted average costs of the securities. The weighted average tax
rates on exempt state and political subdivisions is computed on a taxable
equivalent basis using a 34% tax rate.
Deposits
On December 31, 1996, deposits totaled $786 million, an increase of $31 million,
or 4.2% from year end 1995. Deposits averaged $753 million, an increase of $31
million, or 4.4% from 1995.
During 1996 total average interest bearing deposits increased $30 million, or
4.9% to $641 million while average noninterest bearing deposits increased $1
million, or 1.3% to $112 million.
The primary increase in the deposit base has been with interest bearing demand
deposits and time deposits. Average interest bearing demand deposits increased
$13 million, or 5.2% while average time deposits increased $15 million, or
4.9%.
A summary of average balances and rates paid on deposits follows:
1996 1995 1994
Average Average Average Average Average Average
(In thousands) Balance Rate Balance Rate Balance Rate
Noninterest bearing
demand deposits $112,199 0.00% $110,759 0.00% $121,492 0.00%
Interest bearing
demand deposits 258,606 2.77 245,926 2.96 247,554 2.72
Savings deposits 55,529 2.96 53,417 3.19 55,853 2.89
Time deposits 326,844 5.61 311,668 5.55 274,812 4.30
$753,178 $721,770 $699,711
Maturities of time deposits of $100,000 or more outstanding at December 31, 1996
are summarized as follows:
Time Deposits
(In thousands) >$100,000
3 months or less $19,316
Over 3 through 6 months 11,112
Over 6 through 12 months 12,432
Over 12 months 9,839
$52,699
Short-term Borrowings
Securities sold under
agreement to repurchase: (In thousands) 1996 1995 1994
Amount outstanding at year-end $16,594 $34,638 $43,525
Maximum outstanding at any month-end 59,452 55,929 43,525
Average outstanding 25,706 28,889 33,348
Weighted average prime rate during the year 8.27% 8.83% 7.14%
Weighted average interest rate at year-end 5.17 5.48 3.63
Such borrowings are generally on an overnight basis.
Nonperforming Assets
Nonperforming assets decreased $383 thousand, or 5.5% to $6.6 million at year
end 1996. As a percentage of loans and other real estate owned, nonperforming
assets were 1.2% in 1996 and 1.3% in 1995. Since 1992, nonperforming assets
have decreased $11 million, or 62.5%. The largest reductions have been in other
real estate owned and restructured loans. This trend is the result of
management's continued efforts to improve the quality of the loan portfolio.
The Company's loan policy includes strict guidelines for approving and
monitoring loans. The table below is a five year summary of nonperforming
assets.
Year Ended December 31, (In thousands)
1996 1995 1994 1993 1992
Loans accounted for
on non-accrual basis $2,938 $2,897 $ 3,913 $ 1,565 $ 3,981
Loans contractually past due
ninety days or more 1,822 1,713 1,056 1,402 2,730
Restructured loans 1,814 1,571 3,538 3,734 5,266
Other real estate owned 776 380 1,169 5,541
Total nonperforming assets $6,574 $6,957 $ 8,887 $ 7,870 $17,518
Effects of Inflation
The majority of the Company's assets and liabilities are monetary in nature.
Therefore, the Company differs greatly from most commercial and industrial
companies that have significant investments in nonmonetary assets, such as fixed
assets and inventories. However, inflation does have an important impact on the
growth of assets in the banking industry and on the resulting need to increase
equity capital at higher than normal rates in order to maintain an appropriate
equity to assets ratio. Inflation also affects other expenses, which tend to
rise during periods of general inflation.
Management believes the most significant impact on financial and operating
results is the Company's ability to react to changes in interest rates.
Management seeks to maintain an essentially balanced position between interest
sensitive assets and liabilities in order to protect against the effects of wide
interest rate fluctuations.
Liquidity and Interest Rate Sensitivity
The liquidity of the Company is dependent on the receipt of dividends from its
subsidiary banks (see Note 17 to the financial statements). Management expects
that in the aggregate, its subsidiary banks will continue to have the ability to
dividend adequate funds to the Company.
The Company's objective as it relates to liquidity is to ensure 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. Those sources of funds are:
The subsidiary banks' core deposits consisting of both business and non-
business deposits
Cash flow generated by repayment of loan principal and interest
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.
Interest Rate Sensitivity
Since it is extremely difficult to accurately predict interest rate movements,
it is management's intention to maintain the cumulative interest sensitivity gap
at the one year time frame between plus or minus 10% of total assets. The gap
position may be managed by (1) purchasing investment securities with a maturity
date within the desired time frame, (2) offering interest rate incentives to
encourage loan customers to choose the desired maturity, and (3) offering
interest rate incentives to encourage deposit customers to choose the desired
maturity.
The following chart illustrates interest rate sensitivity at December 31, 1996
for various time periods. The purpose of this GAP chart is to measure interest
rate risk utilizing the repricing intervals of the interest sensitive assets and
liabilities. Rising interest rates are likely to increase net interest income
in a positive GAP position while falling interest rates are beneficial in a
negative GAP position. The Company has a negative GAP position through twelve
months, but then shifts to a positive GAP position between one and five years.
This positioning is due to management's anticipated economic outlook and other
competitive factors.
After Three After
Months But One Year But
Within Within Twelve Within Five After
(In millions) Three Months Months Years Five Years Total
Interest earning assets
Investment securities $ 57.8 $ 32.9 $ 90.4 $ 39.8 $220.9
Federal funds sold 69.9 69.9
Loans, net of unearned
income 210.6 176.4 162.3 8.9 558.2
Total $ 338.3 $ 209.3 $ 252.7 $ 48.7 $849.0
Percentage of total
interest earning assets 39.8% 24.7% 29.8% 5.7% 100.0%
Rate sensitive sources of
funds used to finance
interest earning assets
Interest bearing
demand deposits $303.7 $303.7
Savings 58.5 58.5
Time 93.2 $119.5 $104.1 $3.8 320.6
Other borrowed funds 19.0 1.2 20.2
Total $474.4 $120.7 $104.1 $3.8 $703.0
Percent of total rate
sensitive sources of
funds 67.5% 17.2% 14.8% 0.5% 100.0%
Interest sensitivity gap (136.1) 88.6 148.6 44.9 146.0
Cumulative interest
sensitivity gap (136.1) (47.5) 101.1 46.0
Interest sensitive assets
to interest sensitive
liabilities 0.71 1.73 2.43 12.82 1.21
Cumulative ratio of
interest sensitive assets
to interest sensitive
liabilities 0.71 0.92 1.14 1.21
Cumulative gap as a percent
of total earning assets (16.03)% (5.59)% 11.91% 17.20%
Shareholders' Equity
Shareholders' equity was $110 million on December 31, 1996, increasing $4.7
million, or 4.4% from year end 1995. The increase in shareholders' equity is
due to 1996 net income of $12.7 million offset by the Company's purchase of
69,400 shares of common stock at a cost of $2.7 million and declaration of
dividends totaling $5.7 million. The Company's Board of Directors approved a
13.9% increase in the quarterly dividend rate in the fourth quarter of 1996 from
$.36 per share to $.41 per share. The Company's capital ratios as of December
31, 1996, 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 18.35% 4.00% 6.00%
Total risk based 19.60 8.00 10.00
Leverage 11.91 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 December 31, 1996.
The table below is an analysis of dividend payout ratios and equity to asset
ratios for five years.
December 31, 1996 1995 1994 1993 1992
Percentage of dividends declared
to net income 45.21% 50.24% 46.40% 39.78% 66.26%
Percentage of average shareholders'
equity to average total assets 11.94 11.81 11.57 11.22 10.85
Shareholder Information
As of January 1, 1997, there were 864 shareholders of record. This figure does
not include individual participants in security position listings.
Stock Prices
Farmers Capital Bank Corporation's stock is traded on the National Association
of Security Dealers Automated Quotation System (NASDAQ) SmallCap Market tier of
The NASDAQ Stock Market, with sales prices reported under the symbol: FFKT. The
table below is an analysis of the stock prices and dividends declared for 1996
and 1995.
Stock Prices
Dividends
1996 High Low Declared
Fourth Quarter $40.75 $39.25 $0.41
Third Quarter 40.50 34.50 0.36
Second Quarter 41.50 33.50 0.36
First Quarter 42.50 38.50 0.36
1995
Fourth Quarter $43.50 $37.00 $0.36
Third Quarter 39.50 33.00 0.33
Second Quarter 37.00 32.50 0.33
First Quarter 38.00 35.50 0.33
Dividends declared per share increased $.14 or 10.4% and $.12, or 9.8% for the
years 1996 and 1995, respectively.
Accounting Requirements Effective in 1997
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments 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.
1995 Compared with 1994
Net income was $10.39 million in 1995 compared to $10.25 million in 1994, an
increase of $139 thousand. Net income per share increased from $2.65 to $2.69.
The Company benefited during the second quarter of 1994 from a significant
nonrecurring recovery of prior year losses amounting to $503 thousand after
taxes. Adjusting for the nonrecurring recovery, 1995 net income is $642
thousand or 6.6% higher than net income for 1994. The performance ratios also
increased after adjusting for the nonrecurring recovery. The return on average
assets and average equity increased from 1.16% to 1.21% and from 9.99% to
10.20%, respectively.
Total interest income, on a tax equivalent basis was $68.7 million, up $9.4
million, or 15.9% from 1994. The increase is due primarily to increases in
interest income on loans and taxable investment securities which were rate
driven. The yield on total earning assets increased from 8.0% to 8.8%. This
was accomplished by moving balances from lower yielding asset categories to
higher earning loans.
Total interest expense was $28.1 million, up $6.5 million, or 30.2%. Time
deposits experienced increases both in average balance and in rate paid
accounting for $5.5 million of the increase in total interest expense.
Net interest income on a tax equivalent basis increased 7.7% to $40.6 million.
The growth was the result of a $34.5 million increase in average earning assets
and an 85 basis point increase in the average rate earned on earning assets.
The spread between rates earned and paid was 4.45%, unchanged from 1994, while
the net interest margin increased 3% from 5.06% to 5.21%.
Noninterest income increased $212 thousand to $11.7 million in 1995. After
considering that in 1994, non interest income was inflated by a $758 thousand
nonrecurring recovery, the actual increase would have been $970 thousand. The
majority of the improvement came from increased non-sufficient funds and
overdraft fees.
Noninterest expense increased $1.3 million or 4.3% despite the significant
reduction in FDIC insurance premiums. The $686 thousand decrease in deposit
insurance expense was offset by an $835 thousand increase in salaries and
employee benefits. Equipment expenses and expenses related to other real estate
owned all experienced modest increases.
Income tax expense was $4.4 million in 1995, up $108 thousand from 1994, which
correlates to the increase in income before taxes. The effective tax rate for
1995 was 29.6% compared to 29.4% in 1994.
On December 31, 1995, the allowance for loan losses totaled $8.5 million or 1.6%
of net loans, down slightly from 1994. Nonperforming assets declined $2 million
or 21.7% to $7 million at December 31, 1995. Since 1991, nonperforming assets
have decreased $16 million or 69.6%.
Average assets, average earning assets, average loans, and average deposits
increased between 1995 and 1994 by 2.7%, 4.6%, 5.7% and 3.1%, respectively.
Shareholders' equity was $105 million on December 31, 1995, an increase of $5
million or 4.9% from 1994.
Item 8 - Financial Statements and Supplementary Data
Report of Independent Accountants
To the Board of Directors and Shareholders
Farmers Capital Bank Corporation
We have audited the accompanying consolidated balance sheets of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, in 1995 the
Company changed its method of accounting for impaired loans. Also, as discussed
in Note 3 to the consolidated financial statements, in 1994, the Company changed
its method of accounting for certain investments in debt and equity securities.
/s/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
January 16, 1997
Consolidated Balance Sheets
December 31, (In thousands, except share figures) 1996 1995
Assets
Cash and cash equivalents:
Cash and due from banks $ 52,073 $ 41,126
Interest bearing deposits in other banks 758 688
Federal funds sold and securities purchased under
agreement to resell 69,915 68,370
Total cash and cash equivalents 122,746 110,184
Investment securities:
Available for sale 109,291 105,933
Held to maturity 111,609 120,991
Total investment securities 220,900 226,924
Loans 567,447 554,942
Less:
Allowance for loan losses (8,741) (8,472)
Unearned income (9,198) (11,762)
Loans, net 549,508 534,708
Bank premises and equipment 19,320 19,916
Interest receivable 8,129 7,889
Deferred income taxes 613 1,363
Other assets 4,103 5,129
Total assets $925,319 $906,113
Liabilities
Deposits:
Noninterest bearing $103,488 $109,490
Interest bearing 682,822 645,371
Total deposits 786,310 754,861
Other borrowed funds 20,165 38,524
Dividends payable 1,558 1,392
Interest payable 2,204 2,370
Other liabilities 5,486 4,037
Total liabilities 815,723 801,184
Commitments and contingencies
Shareholders' Equity
Common stock, par value $.25 per share;
4,804,000 shares authorized; 3,796,982
and 3,866,382 shares issued and
outstanding at December 31, 1996 and 1995,
respectively 949 967
Capital surplus 8,931 9,094
Retained earnings 100,078 95,694
Net unrealized loss on securities available
for sale, net of tax (362) (826)
Total shareholders' equity 109,596 104,929
Total liabilities and shareholders' equity $925,319 $906,113
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Income
For the years ended December 31,
(In thousands, except per share data) 1996 1995 1994
Interest income
Interest and fees on loans $52,778 $53,965 $46,951
Interest on investment securities:
Taxable 9,121 7,923 6,106
Nontaxable 2,872 2,331 2,295
Interest on deposits in other banks 61 116 122
Interest on federal funds sold and securities
purchased under agreement to resell 2,653 2,926 2,276
Total interest income 67,485 67,261 57,750
Interest expense
Interest on deposits 27,170 26,274 20,171
Interest on other borrowed funds 1,533 1,841 1,415
Total interest expense 28,703 28,115 21,586
Net interest income 38,782 39,146 36,164
Provision for loan losses 4,162 3,727 2,125
Net interest income after provision
for loan losses 34,620 35,419 34,039
Noninterest income
Service charges and fees on deposits 5,702 5,425 4,743
Trust income 1,251 1,176 1,202
Investment gains (losses) net 10 2 (74)
Gain on sale of Money One loans 3,206 -- --
Other 4,820 5,140 5,660
Total noninterest income 14,989 11,743 11,531
Noninterest expense
Salaries and employee benefits 17,246 16,788 15,953
Occupancy expenses, net 1,995 1,982 1,991
Equipment expenses 2,603 2,712 2,554
Bank shares tax 1,045 1,000 1,097
Deposit insurance expense 11 826 1,512
Other 8,875 9,093 7,949
Total noninterest expense 31,775 32,401 31,056
Income before income taxes 17,834 14,761 14,514
Income tax expense 5,178 4,372 4,264
Net income $12,656 $10,389 $10,250
Net income per common share $3.29 $2.69 $2.65
Weighted average shares outstanding 3,842 3,866 3,866
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Changes in Shareholders' Equity
For the years ended
December 31, 1996, 1995 and 1994
(In thousands, except per share data)
Net Unrealized
Gain(Loss) Total
Common Capital Retained on Securities Shareholders'
Stock Surplus Earnings Available for Sale Equity
Balance at
January 1, 1994 $967 $9,094 $85,030 $95,091
Cumulative effect of net
unrealized gain on
securities available for
sale, net of tax $182 182
Cash dividends declared,
$1.23 per share (4,756) (4,756)
Net income 10,250 10,250
Net unrealized loss on
securities available
for sale, net of tax (703) (703)
Balance at
December 31, 1994 967 9,094 90,524 (521) 100,064
Cash dividends declared,
$1.35 per share (5,219) (5,219)
Net income 10,389 10,389
Net unrealized loss on
securities available
for sale, net of tax (305) (305)
Balance at
December 31, 1995 967 9,094 95,694 (826) 104,929
Cash dividends declared
$1.49 per share (5,722) (5,722)
Purchase of 69,400 shares
of common stock (18) (163) (2,550) (2,731)
Net income 12,656 12,656
Net unrealized gain on
securities available
for sale net of tax 464 464
Balance at
December 31, 1996 $949 $8,931 $100,078 $(362) $109,596
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Cash Flows
For the years ended December 31, (In thousands) 1996 1995 1994
Cash flows from operating activities
Net income $ 12,656 $ 10,389 $ 10,250
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,477 2,634 2,553
Net amortization of investment security premiums
and discounts:
Available for sale (388) (818) 117
Held to maturity 111 238 326
Provision for loan losses 4,162 3,727 2,125
Mortgage loans originated for sale (8,017) (14,730) (3,840)
Proceeds from sale of mortgage loans 7,955 14,730 3,840
Deferred income tax expense (benefit) 512 732 (18)
Gain on sale of mortgage loans (18)
Gain on sale of Money One loans (3,206)
(Gain) loss on sale of fixed assets (150) 32
(Gain) loss on sale or call of investment securities:
Available for sale 74
Held to maturity (10)
Changes in:
Interest receivable (240) (1,111) (358)
Other assets 491 (1,078) 785
Interest payable (166) 655 240
Other liabilities 1,449 476 589
Net cash provided by operating activities 17,618 15,844 16,715
Cash flows from investing activities
Proceeds from maturities and calls of
investment securities:
Available for sale 132,172 84,897 73,841
Held to maturity 39,175 51,855 21,609
Proceeds from sales of investment securities:
Available for sale 11,603
Purchases of investment securities:
Available for sale (134,440) (118,004) (77,005)
Held to maturity (29,894) (52,607) (35,431)
Loans originated for investment, net of
principal collected (31,123) (14,134) (53,336)
Purchases of bank premises and equipment (1,594) (1,413) (921)
Proceeds from sale of equipment 399 6
Proceeds from sale of Money One loans 15,447
Net cash used in investing activities (9,858) (49,406) (59,634)
Cash flows from financing activities
Net increase in deposits 31,449 58,166 39,262
Dividends paid (5,557) (5,103) (4,640)
Purchase of common stock (2,731)
Net (decrease) increase in other
borrowed funds (18,359) (9,868) 11,064
Net cash provided by financing activities 4,802 43,195 45,686
Net change in cash and cash equivalents 12,562 9,633 2,767
Cash and cash equivalents at beginning of year 110,184 100,551 97,784
Cash and cash equivalents at end of year $122,746 $110,184 $100,551
Supplemental disclosures
Cash paid during the year for:
Interest $ 28,869 $ 27,460 $ 21,346
Income taxes 4,210 3,730 4,255
Cash dividend declared and unpaid 1,558 1,392 1,276
The accompanying notes are an integral part of the consolidated financial
statements.
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Farmers Capital Bank Corporation and
Subsidiaries conform to generally accepted accounting principles and general
practices applicable to the banking industry. The more significant accounting
policies are summarized below:
Basis of Presentation and Organization
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 Company is predominantly engaged in the business of receiving deposits
from and making real estate, commercial and consumer loans to businesses and
consumers in Central Kentucky.
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 at 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.
Reclassifications
Certain amounts in the accompanying consolidated financial statements
presented for prior years have been reclassified to conform with the 1996
presentation. These reclassifications do not affect net income or
shareholders' equity as previously reported.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, interest bearing demand deposits in other
banks, federal funds sold and securities purchased under agreements to
resell. Generally, federal funds sold and securities purchased under
agreements to resell are purchased and sold for one-day periods.
Investment Securities
All investments in debt securities and all investments in equity securities
are classified into three categories. Securities that management has
positive intent and ability to hold until maturity are classified as held to
maturity. Securities that are bought and held specifically for the purpose
of selling them in the near term are classified as trading securities. All
other securities are classified as available for sale. Securities are
designated as available for sale if management intends to use such securities
in its asset/liability management strategy and therefore such securities may
be sold in response to changes in interest rates and prepayment risk.
Securities classified as trading and available for sale are carried at market
value. Unrealized holding gains and losses for trading securities are
included in current income. Unrealized holding gains and losses for
available for sale securities are reported net as a separate component of
shareholders' equity until realized. Investments classified as held to
maturity are carried at amortized cost. Realized gains and losses on any
sales of securities are computed on the basis of specific identification of
the adjusted cost of each security and are included in noninterest income.
Loans
Loans are stated at the principal amount outstanding. Interest income on
loans is recognized using the interest method based on loan principal amounts
outstanding during the period. Accrual of interest is adjusted or
discontinued on a loan when, in the opinion of management, its collection
becomes doubtful.
Provision for Loan Losses
The provision for loan losses charged to operating expenses is an amount that
is sufficient to maintain the allowance for loan losses at an adequate level
based on management's best estimate of possible future loan losses.
Management's determination of the adequacy of the allowance is based on such
considerations as the current condition and volume of the Company's loan
portfolios, economic conditions within the Company's service areas, review of
specific problem loans, and any other factors influencing the collectibility
of the loan portfolios.
Other Real Estate
Other real estate owned and held for sale included with other assets on the
accompanying consolidated balance sheets includes properties acquired by the
Company through actual loan foreclosures. Other real estate owned is carried
at the lower of cost or fair value less estimated costs to sell. Fair value
is the amount that the Company could reasonably expect to receive in a
current sale between a willing buyer and a willing seller, other than in a
forced or liquidation sale. Fair value of assets is measured by the market
value based on comporable sales. Any reduction to fair value from the fair
value recorded at the time of acquisition is accounted for as a valuation
reserve.
Deferred Income Taxes
Deferred income taxes are recognized for the tax consequences on future years
of temporary differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.
Bank Premises and Equipment
Bank premises, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation is computed
primarily on the straight-line method over the estimated useful lives for
furniture, equipment and buildings. Leasehold improvements are amortized
over the shorter of the estimated useful lives or terms of the related leases
on the straight-line method. Maintenance, repairs and minor improvements are
charged to operating expenses as incurred and major improvements are
capitalized. The cost of assets sold or retired and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in income.
Earnings Per Share
Earnings per share is calculated on the basis of the weighted average number
of common shares outstanding.
2. Restrictions on Cash and Due From Banks
Included in cash and due from banks are certain noninterest bearing deposits
that are held at the Federal Reserve Bank and correspondent banks in accordance
with regulatory reserve requirements specified by the Federal Reserve Board of
Governors. The balance requirement was $9,990,000 at December 31, 1996 and
$8,988,000 at December 31, 1995.
3. Investment Securities
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". SFAS No. 115 requires investments in equity securities that have a
readily determinable fair value and investments in debt securities to be
classified into three categories, as follows: held to maturity debt securities,
trading securities, and available for sale securities. Investments categorized
as available for sale had an estimated fair value in excess of carrying value of
$276,000 at January 1, 1994, and had the effect of increasing shareholders'
equity by $182,000 (net of tax effect of $94,000). There was no impact on the
Company's consolidated net income as a result of the adoption of SFAS No. 115.
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1996. The summary is divided into
available for sale and held to maturity securities.
Gross Gross Estimated
December 31, 1996 (In thousands) Amortized Unrealized Unrealized Fair
Available for Sale Cost Gains Losses Value
U.S. Treasury $ 27,485 $ 17 $ 49 $27,453
Obligations of U.S. Government
agencies 63,287 10 553 62,744
Mortgage-backed securities 15,296 46 13 15,329
Other securities 3,772 7 3,765
Total securities - available
for sale $109,840 $ 73 $622 $109,291
Held to Maturity
U.S. Treasury $ 2,000 $ 1 $ 5 $ 1,996
Obligations of U.S. Government
agencies 28,581 22 192 28,411
Obligations of states and
political subdivisions 62,839 511 344 63,006
Mortgage-backed securities 14,680 145 24 14,801
Other securities 3,509 17 12 3,514
Total securities - held
to maturity $111,609 $696 $577 $111,728
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1995.
Gross Gross Estimated
December 31, 1995 (In thousands) Amortized Unrealized Unrealized Fair
Available for Sale Cost Gains Losses Value
U.S. Treasury $ 16,609 $ 70 $ 11 $ 16,668
Obligations of U.S. Government
agencies 78,992 52 1,420 77,624
Mortgage-backed securities 10,210 41 10,251
Other securities 1,372 18 1,390
Total securities - available
for sale $107,183 $181 $1,431 $105,933
Held to Maturity
U.S. Treasury $ 15,994 $ 79 $ 6 $ 16,067
Obligations of U.S. Government
agencies 34,732 192 176 34,748
Obligations of states and
political subdivisions 54,696 721 256 55,161
Mortgage-backed securities 13,151 214 31 13,334
Other securities 2,418 24 8 2,434
Total securities - held
to maturity $120,991 $1,230 $477 $121,744
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1996, by contractual maturity, are shown below. The summary is
divided into available for sale and held to maturity securities.
Available for Sale Held to Maturity
Amortized Estimated Amortized Estimated
December 31, 1996 (In thousands) Cost Fair Value Cost Fair Value
Due in one year or less $ 50,553 $ 50,413 $ 20,572 $ 20,593
Due after one year through
five years 46,473 46,036 61,212 61,163
Due after five years through
ten years 6,098 6,103 28,009 28,156
Due after ten years 6,716 6,739 1,816 1,816
$109,840 $109,291 $111,609 $111,728
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Proceeds from sales and maturities of investments in debt securities during
1996, 1995 and 1994 were $171,347,000, $136,752,000, and $107,053,000,
respectively. Gross gains of $10,000, $2,000, and $3,000 and gross losses of
$0, $0, and $77,000 for 1996, 1995 and 1994, respectively, were realized on
those sales and maturities.
The amortized cost and estimated fair value of investment securities which were
pledged as collateral for public deposits, treasury deposits, trust funds,
customer repurchase agreements, and other purposes as required by law at
December 31, 1996 and 1995 are shown below. The securities are divided into
available for sale and held to maturity.
1996 1995
Available Held to Available Held to
December 31, (In thousands) for Sale Maturity for Sale Maturity
Amortized cost $61,264 $56,715 $51,077 $67,903
Estimated fair value 60,885 56,847 50,217 68,496
4. Loans
Major classifications of loans are summarized as follows:
December 31, (In thousands) 1996 1995
Commercial, financial and agricultural $120,256 $114,412
Real estate - construction 27,098 26,380
Real estate - mortgage 305,229 292,913
Consumer loans 85,720 99,571
Lease financing 29,144 21,666
Total loans 567,447 554,942
Less unearned income (9,198) (11,762)
Total loans, net of unearned income $558,249 $543,180
Loans to directors, executive officers, principal shareholders, including loans
to affiliated companies of which directors, executive officers and principal
shareholders are principal owners, and loans to members of the immediate family
of such persons, were approximately $13,277,000 and $12,602,000 at December 31,
1996 and 1995, respectively. An analysis of the activity with respect to these
loans follows:
(In thousands)
Balance, December 31, 1995 $12,602
Additions, including loans now meeting
disclosure requirements 8,413
Amounts collected, including loans no longer
meeting disclosure requirements 7,738
Balance, December 31, 1996 $13,277
5. Allowance for Loan Losses
On January 1, 1995, the Company implemented SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures" which amends SFAS
No. 114. The two Statements address the following:
1. The accounting by creditors for impairment of a loan.
2. The accounting by creditors for loans that are restructured in a troubled
debt restructuring involving a modification of terms of a receivable.
3. The elimination of the categories of loans classified as in-substance
foreclosures.
SFAS No. 114 requires the measurement of impaired loans based on the present
value of expected future cash flows using the loan's effective interest rate or,
as a practical expedient, it may be measured on the fair market value of the
loan, or the fair value of the collateral, if the loan is collateral dependent.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. If the measure of the impaired
loan is less than the recorded investment, an impairment will be recognized by
creating a valuation allowance with a corresponding charge to the provision for
loan loss. The adoption of SFAS No. 114 did not result in additional provisions
for loan losses or changes in previously reported net earnings due to the fact
that the Company's existing methods of measuring laon impairment are consistent
with the methods prescribed in the Statement.
SFAS No. 114 does not apply to large groups of smaller balance homogeneous loans
that are collectively evaluated for impairment. The Company has identified
these loans as credit card loans, home mortgages, and all other loans less than
$500,000.
The factors considered by management in determining if a loan is impaired
include, but are not limited to, the following: length of delinquency, past
history with the borrower, financial condition of the borrower, ability of the
borrower to repay the debt based upon cash flow information, intentions of the
borrower, and value of the collateral. Impairment is not necessarily determined
by a minimum delay in payment. A minimum delay in payment occurs when the exact
terms of the loan agreement have not been met by the borrower; however, the
Company believes that contractual interest and principal payments will still be
received. These loans are considered non-accrual loans because the timing of
interest payments is unknown; however, it is still likely that interest will be
received. Payments received while a loan is on non-accrual status are applied
against principal only.
All of the loans of the Company to which SFAS No. 114 applies are classified as
commercial loans. Due to the size of the Company and the few loans that meet
the criteria for application of SFAS No. 114, no further risk classification is
necessary. On December 31, 1996 and 1995, the recorded investment in loans for
which impairment has been recognized in accordance with the SFAS No. 114 totaled
$2,847,000 and $2,000,000, respectively, and the total allowance related to such
loans was $922,000 and $785,000. Of the $2,847,000 recorded investment at
December 31, 1996, $1.192,000 was measured using the present value of future
cash flows method and $1,655,000 was measured using the fair value of collateral
method. Of the $2,000,000 recorded investment at December 31, 1995, $1,100,000
was measured using the present value of future cash flows method and $900,000
was measured using the fair value of collateral method. The recorded investment
averaged $2,769,000 and $2,587,000 for the years ended December 31, 1996 and
1995, respectively. The amount of interest on these loans during 1996 and 1995
was $151,000 and $113,000, respectively. If the Company had used a cash-based
method of accounting for the interest on these loans, the interest earned would
have been $169,000 and $114,000 at December 31, 1996 and 1995, respectively.
The Company's charge-off policy for impaired loans does not differ from the
charge-off policy for loans outside the definition of SFAS No. 114. Loans that
are delinquent in excess of 120 days are charged-off unless there is a valid
reason for the delinquency and the borrower continues to maintain a satisfactory
financial standing and/or the collateral securing the debt is of such value that
any loss appears to be unlikely.
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands) 1996 1995 1994
Regular SFAS 114 Total Regular SFAS 114 Total Regular
Allowance Allowance Allowance Allowance Allowance Allowance Allowance
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of year $7,687 $ 785 $8,472 $ 8,889 None $ 8,889 $ 8,547
Provisions for loan losses 3,044 1,118 4,162 3,727 3,727 2,125
Recoveries 516 516 740 740 841
Loans charged off (3,428) (981) (4,409) (3,666) $(1,218) (4,884) (2,624)
Initial transfer to
SFAS 114 allowance (2,003) (2,003)
Initial transfer
from regular allowance 2,003 2,003
Balance, end of year $7,819 $ 922 $8,741 $7,687 $ 785 $8,472 $ 8,889
</TABLE>
The following is an estimate of the breakdown of the allowance for loan losses
by type for the date indicated:
Year Ended December 31, (In thousands) 1996 1995
Commercial, financial and agricultural $3,806 $4,138
Real estate 2,974 1,928
Installment loans to individuals 1,304 2,176
Direct lease financing 657 230
Total $8,741 $8,472
6. Nonperforming Assets
(In thousands) 1996 1995 1994
Non-accrual loans $2,938 $2,897 $ 3,913
Loans past due 90 days or more 1,822 1,713 1,056
Restructured loans 1,814 1,571 3,538
Total nonperforming loan balances
at December 31, 6,574 6,181 8,507
Other real estate owned 776 380
Total nonperforming assets at
December 31, $6,574 $6,957 $ 8,887
Nonperforming loans as a percentage of
loans - net of unearned interest 1.2% 1.1% 1.6%
Nonperforming assets as a percentage
of loans and other real estate owned 1.2% 1.3% 1.7%
Interest income that would have been
recognized under original terms for
the year on nonperforming loans $ 445 $ 731 $ 576
Amount of interest income recognized
for the year on nonperforming loans $ 189 $ 133 $ 117
7. Bank Premises and Equipment
Bank premises and equipment consist of the following:
December 31, (In thousands) 1996 1995
Land, building and leasehold improvement $23,082 $22,566
Furniture and equipment 17,564 17,919
Total bank premises and equipment 40,646 40,485
Less accumulated depreciation and amortization 21,326 20,569
Net bank premises and equipment $19,320 $19,916
Depreciation and amortization of bank premises and equipment was $1,941,000,
$2,082,000, and $1,973,000 in 1996, 1995 and 1994, respectively.
8. Interest Bearing Deposits
Time deposits of $100,000 or more at December 31, 1996 and 1995 were $53,488,000
and $58,641,000, respectively.
9. Other Borrowed Funds
Other borrowed funds are comprised primarily of securities sold under agreement
to repurchase with balances of $16,594,000 and $34,638,000 at December 31, 1996
and 1995, respectively. The weighted average interest rates on securities sold
under agreement to repurchase for 1996 and 1995 were 5.11% and 5.48%,
respectively.
10. Income Taxes
The components of income tax expense are as follows:
December 31, (In thousands) 1996 1995 1994
Currently payable $4,666 $3,640 $4,282
Deferred income taxes 512 732 (18)
Total $5,178 $4,372 $4,264
An analysis of the difference between the effective income tax rates and the
statutory federal income tax rate follows:
December 31, (In thousands) 1996 1995 1994
Federal statutory rate 35.0% 35.0% 35.0%
Changes from statutory rates resulting from:
Tax exempt interest (6.8) (7.4) (7.0)
Nondeductible interest to carry
municipal obligations .8 .9 .7
Amortization of intangibles 1.0 1.2 1.3
Other, net (1.0) (.1) (.6)
Effective tax rate 29.0% 29.6% 29.4%
The tax effects of the significant temporary differences which comprise deferred
tax assets and liabilities at December 31, 1996 and 1995 follows:
December 31, (In thousands) 1996 1995
Assets
Loan loss reserve $3,059 $3,000
Deferred directors' fees 168 145
Postretirement benefit obligation 366 257
Investment securities 187 425
Self-funded insurance 196
Other 95 260
Total deferred tax assets 4,071 4,087
Liabilities
Depreciation 1,691 1,643
Deferred loan fees 632 228
Lease financing operations 1,045 752
Other 90 101
Total deferred tax liabilities 3,458 2,724
Net deferred tax assets $ 613 $1,363
11. Retirement Plans
The Company maintains a defined contribution-money purchase pension plan which
covers substantially all employees. The Company's contributions under the plan
are based upon a percentage of covered employees' salaries.
The Company has established a stock bonus/employee stock ownership plan for the
benefit of substantially all employees of the Company. The Company's
contributions under the plan are based upon a percentage of covered employees'
salaries, and are paid at the discretion of the Board of Directors of the
Company. The Company contributes cash to the plan and Company shares are
purchased with the cash in the open market. Cash contributed to the plan was
$102,000, $0, and $100,000, respectively for the years ended December 31, 1996,
1995 1995 and 1994. No stock was contributed to the plan for the years ended
December 31, 1996, 1995 and 1994, respectively.
The Company has also established a profit-sharing (401K) plan which covers
substantially all employees. The Company will match all eligible employee
contributions up to 4% of the participant's compensation. The Company may, at
the discretion of the Board, contribute an additional amount based upon a
percentage of covered employees' salaries.
The total retirement plans' expense for 1996, 1995 and 1994 was $897,000,
$857,000, and $820,000, respectively.
12. Postretirement Benefits
The Company provides lifetime medical and dental benefits for certain eligible
retired employees. Only employees meeting the eligibility requirements as of
December 31, 1989 will be eligible for such benefits upon retirement. The
entire cost of these benefits is paid for by the Company as incurred and totaled
$127,000, $131,000, and $86,000, respectively, for the years ended December 31,
1996, 1995 and 1994. The plan is unfunded.
The following table sets forth the plan's status reconciled with the amount
shown in the Company's balance sheets at December 31, 1996 and 1995.
(In thousands) 1996 1995
Accumulated postretirement benefit obligation
Retirees and dependents $2,577 $3,367
Fully eligible active plan participants 675 671
Other active plan participants 698 684
Total accumulated postretirement
benefit obligation 3,950 4,722
Unrecognized net loss (866) (1,768)
Unamortized transition obligation (1,623) (1,725)
Unrecognized prior service cost (509) (551)
Accrued postretirement benefit cost $ 952 $ 678
The components of the net periodic postretirement benefit cost at December 31,
1996 and 1995 are as follows:
(In thousands) 1996 1995
Service cost $ 24 $ 19
Interest on accumulated benefit obligation 278 243
Amortization of transition obligation and other 192 144
Total $494 $ 406
Major assumptions:
Discount rate 7.5% 7.0%
For measurement purposes, a 10.6% annual rate of increase in the per capita cost
of covered health care benefits for those below the age of 65 and 8.8% for those
over 65 was assumed. The rate was assumed to decrease gradually to 6% by 2012
and remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported.
If the health care cost trend rate were to increase 1%, the service and interest
cost would be $341,000 and the accumulated benefit obligation would be
$4,458,000.
13. Leases
The Company leases certain of its branch sites and certain banking equipment
under operating leases. All of the branch site leases have renewal options of
varying lengths and terms. The aggregate minimum rental commitments under these
leases are not material.
14. Financial Instruments With Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers. The
financial instruments include commitments to extend credit and standby letters
of credit.
These financial instruments involve to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheets. The contract amounts of these instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
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 or other termination clauses and may
require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. Total commitments to extend
credit at December 31, 1996, were $76,087,000. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the counterparty. Collateral held varies,
but may include accounts receivable, marketable securities, inventory, property,
plant and equipment, residential real estate, and income producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements. The
credit risk involved in using letters of credit is essentially the same as that
received when extending credit to customers. The Company had approximately
$5,019,000 in irrevocable letters of credit outstanding at December 31, 1996.
15. Concentration of Credit Risk
The Company's bank subsidiaries actively engage in lending, primarily in home
counties and adjacent areas. Collateral is received to support these loans when
deemed necessary. The more significant categories of collateral include cash on
deposit with the Company's banks, marketable securities, income producing
property, home mortgages, and consumer durables. Loans outstanding, commitments
to make loans, and letters of credit range across a large number of industries
and individuals. The obligations are significantly diverse and reflect no
material concentration in one or more areas.
16. Contingencies
The Company's bank subsidiaries are defendants in legal actions arising from
normal business activities. Management believes these actions are without
merit, that in certain instances its actions or omissions were pursuant to the
advice of counsel, or that the ultimate liability, if any, resulting from them
will not materially affect the Company's consolidated financial position or
results of operations or cash flows, although resolution in any year or quarter
could be material for that period.
17. Dividend Limitations
Payment of dividends by the Company's subsidiary banks is subject to certain
regulatory restrictions as set forth in national and state banking laws and
regulations. At December 31, 1996, combined retained earnings of the subsidiary
banks were approximately $39,378,000 of which $7,742,000 is available for the
payment of dividends in 1997 without obtaining prior approval from bank
regulatory agencies.
18. 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
Extinguishments 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.
19. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and Cash Equivalents
The carrying amount is a reasonable estimate of fair value.
Investment Securities
For marketable equity securities held for investment purposes, fair values
are based on quoted market prices or dealer quotes. For other securities
held as investments, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
Loan Receivables
For variable rate loans that reprice frequently with no significant change in
credit risk, fair values approximate carrying amounts.
For certain homogeneous categories of loans, such as credit card receivables,
fair value is estimated using the quoted market prices for securities backed
by similar loans, adjusted for differences in loan characteristics. The fair
value of other types of loans is estimated by discounting the future cash
flows using a discount rate that has been adjusted for credit risk and the
remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The carrying
amount for variable rate and fixed maturity money market accounts and
certificates of deposit approximates fair value at the reporting date. The
fair value of fixed rate and fixed maturity certificates of deposit is
estimated using a discounted cash flow method that applies interest rates
currently offered for certificates of deposit with similar remaining
maturities.
Commitments to Extend Credit and Standby Letters of Credit
Pricing of these financial instruments is based on the credit quality and
relationship, fees, interest rates, probability of funding, compensating
balance, and other covenants or requirements. Loan commitments generally
have fixed expiration dates, variable interest rates and contain termination
and other clauses which provide for relief from funding in the event there is
a significant deterioration in the credit quality of the customer. Many loan
commitments are expected to, and typically do, expire without being drawn
upon. The rates and terms of the Company's commitments to lend, and standby
letters of credit are competitive with others in the various markets in which
the Company operates. There are no unamortized fees relating to these
financial instruments, as such the carrying value and fair value are both
zero.
Other Borrowed Funds
The fair value of other borrowed funds is estimated using rates currently
available for debt with similar terms and remaining maturities.
The estimated fair values of the Company's financial instruments are as follows:
1996 1995
Carrying Fair Carrying Fair
December 31, (In thousands) Amount Value Amount Value
Assets
Cash and cash equivalents $122,746 $122,746 $110,184 $110,184
Investments securities:
Available for sale 109,291 109,291 105,933 105,933
Held to maturity 111,609 111,728 120,991 121,744
Loans, net 549,508 543,252 534,708 528,749
Liabilities
Deposits 786,310 787,793 754,861 757,771
Other borrowed funds 20,165 20,419 38,524 37,362
20. Quarterly Financial Data
Quarters Ended 1996
Unaudited
(In thousands, except per share data) March 31, June 30, Sept. 30, Dec. 31,
Interest income $16,966 $17,032 $16,725 $16,762
Interest expense 7,323 7,111 7,134 7,135
Net interest income 9,643 9,921 9,591 9,627
Provision for loan losses 1,270 1,819 468 605
Net interest income after
provision for loan losses 8,373 8,102 9,123 9,022
Other income 2,897 5,848 2,954 3,290
Other expense 7,847 7,766 7,643 8,519
Income before income taxes 3,423 6,184 4,434 3,793
Income tax 968 1,995 1,297 918
Net income $2,455 $4,189 $3,137 $2,875
Net income per common share $0.64 $1.08 $0.82 $0.76
Weighted average shares outstanding 3,866 3,866 3,836 3,798
Quarters Ended 1995
Unaudited
(In thousands, except per share data) March 31, June 30, Sept. 30, Dec. 31,
Interest income $16,148 $16,596 $16,972 $17,545
Interest expense 6,584 6,988 7,162 7,381
Net interest income 9,564 9,608 9,810 10,164
Provision for loan losses 713 1,048 945 1,021
Net interest income after
provision for loan losses 8,851 8,560 8,865 9,143
Other income 2,562 3,110 2,973 3,099
Other expense 8,057 8,564 7,692 8,089
Income before income taxes 3,356 3,106 4,146 4,153
Income tax 1,011 920 1,272 1,169
Net income $ 2,345 $ 2,186 $ 2,874 $ 2,984
Net income per common share $ 0.61 $ 0.57 $ 0.74 $ 0.77
Weighted average shares outstanding 3,866 3,866 3,866 3,866
21. Parent Company Financial Statements
Condensed Balance Sheets
December 31, (In thousands) 1996 1995
Assets
Cash on deposit with subsidiaries $ 28,197 $ 24,598
Investment in subsidiaries 82,474 81,349
Other assets 1,940 1,581
Total assets $112,611 $107,528
Liabilities
Dividends payable $ 1,558 $ 1,392
Other liabilities 1,457 1,207
Total liabilities 3,015 2,599
Shareholders' Equity
Common stock 949 967
Capital surplus 8,931 9,094
Retained earnings 100,078 95,694
Net unrealized loss on securities
available for sale, net of tax (362) (826)
Total shareholders' equity 109,596 104,929
Total liabilities and shareholders' equity $112,611 $107,528
Condensed Statements of Income
December 31, (In thousands) 1996 1995 1994
Income
Dividends from subsidiaries $12,847 $ 7,756 $ 24,090
Interest income 98 101 72
Other income 689 724 740
Total income 13,634 8,581 24,902
Expense
Other expense 2,149 1,556 1,526
Total expense 2,149 1,556 1,526
Income before income tax benefit
and equity in income of subsidiaries
less amounts distributed to parent 11,485 7,025 23,376
Income tax benefit 509 288 154
Income before equity in income of
subsidiaries less amounts
distributed to parent 11,994 7,313 23,530
Equity in income of subsidiaries
less amounts distributed to parent 662 3,076 (13,280)
Net income $12,656 $10,389 $ 10,250
Condensed Statements of Cash Flows
December 31, (In thousands) 1996 1995 1994
Cash flows from operating activities
Net income $12,656 $10,389 $ 10,250
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in income of subsidiaries less
amounts distributed to parent (662) (3,076) 13,280
Change in other assets and liabilities, net (107) 420 548
Net cash provided by operating activities 11,887 7,733 24,078
Cash flows from financing activities
Cash dividends (5,557) (5,104) (4,640)
Purchase of common stock (2,731)
Net cash used in financing activities (8,288) (5,104) (4,640)
Net change in cash and cash equivalents 3,599 2,629 19,438
Cash and cash equivalents at beginning of year 24,598 21,969 2,531
Cash and cash equivalents at end of year $28,197 $24,598 $ 21,969
Supplemental disclosures
Cash paid during the year for income taxes $4,210 $ 3,730 $ 4,255
Cash dividend declared and unpaid 1,558 1,392 1,276
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 28, 1997, Farmers Capital Bank Corporation (the "Registrant")
engaged the accounting firm of KPMG Peat Marwick LLP as principal accountants,
subject to the approval of the Registrant's shareholders. KPMG Peat Marwick LLP
replaces Coopers & Lybrand L.L.P. (the "Former Accountant") as of the date
reported above. The change in the Registrant's independent public accountants
was the result of a formal proposal process involving several accounting firms.
The decision to change accountants was approved by the Registrant's Board of
Directors.
During the two most recent fiscal years and the subsequent interim prior to
February 28, 1997, there have been no disagreements with the Former Accountant
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or any reportable events.
The Former Accountants report on the consolidated financial statements for the
past two years contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
None of the following events has occurred within the Registrant's two most
recent fiscal years or the subsequent interim period preceding the change in
accountants:
(A) the Former Accountant has not advised the Registrant that the internal
controls necessary for the Registrant to develop reliable financial
statements do not exist;
(B) the Former Accountant has not advised the Registrant that information had
come to the accountant's attention that led it to no longer be able to rely
on management's representations, or that made it unwilling to be associated
with the financial statements prepared by management;
(C) (1) the Former Accountant has not advised the Registrant of the need to
expand significantly the scope of its audit, or that information has come to
the accountant's attention that if further investigated could (i) materially
impact the fairness or reliability of either a previously issued audit
report or the underlying financial statements, or the financial statements
issued or to be issued covering the fiscal periods subsequent to the date of
the most recent financial statements covered by an audit report (including
information that could prevent it from rendering an unqualified report on
those financial statements), or (ii) cause it to be unwilling to rely on
management's representations or be associated with the Registrant's
financial statements, and (2) due to the accountant's dismissal, or for any
other reason, the accountant did not so expand the scope of its audit or
conduct such further investigations; or
(D) (1) the Former Accountant has not advised the Registrant that information
has come to the accountant's attention that it concluded materially impacts
the fairness or reliability or either (i) a previously issued audit report
or the underlying financial statements, or (ii) the financial statements
issued or to be issued covering the fiscal periods subsequent to the date of
the most recent financial statements issued or to be issued covered by an
audit report (including information that, unless resolved to the
accountant's satisfaction, would prevent it from rendering an unqualified
audit report on those financial statements), and (2) due to the accountant's
dismissal, or for any other reason, the issue has not been resolved to the
accountant's satisfaction prior to its dismissal.
During the two most recent fiscal years, and the subsequent interim period prior
to engaging KPMG Peat Marwick LLP, neither the Registrant, nor anyone on its
behalf, consulted KPMG Peat Marwick LLP regarding (i) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Registrant's
financial statements, where either a written report was provided to the
Registrant or oral advice was provided, that KPMG Peat Marwick LLP concluded was
an important factor considered by the Registrant in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that
was either the subject of a disagreement (as defined in paragraph 304(a)(l)(iv)
of Regulation S-K and the related instructions) or a reportable event (as
described in paragraph 304(a)(l)(v) of Regulation S-K).
The Registrant has requested that the Former Accountant furnish it with a letter
addressed to the SEC stating whether it agrees with the above statements. A
copy of the Former Accountant's letter to the SEC dated March 5, 1997 is
attached as an exhibit to this report.
PART III
Item 10 - Directors and Executive Officers of the Registrant
Positions and Years of Service
Offices With With the
Executive Officer Age Registrant Registrant
Charles S. Boyd 55 Director1 , President 33*
and CEO
James H. Childers 54 Executive Vice President, 27*
Secretary, General Counsel,
Director2
Additional information required by Item 10 is hereby incorporated by reference
from the Registrant's definitive proxy statement in connection with its annual
meeting of shareholders scheduled for May 13, 1997 which will be filed with the
Commission in March 1997, pursuant to Regulation 14A.
* Includes years of service with the Registrant and Farmers Bank & Capital Trust
Co.
1 Also a director of Farmers Bank, Horse Cave Bank, Farmers Georgetown Bank,
United Bank, Lawrenceburg Bank, First Citizens Bank, FCB Services and Money
One (prior to the dissolution of Money One in 1996).
2 A director of Farmers Georgetown Bank.
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Item 13 - Certain Relationships and Related Transactions
The information required by Items 11 through 13 is hereby incorporated by
reference from the Registrant's definitive proxy statement in connection with
its annual meeting of shareholders scheduled for May 13, 1997 which will be
filed with the Commission in March 1997, pursuant to Regulation 14A.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of documents and exhibits
1 & 2 Financial Statements and Schedules Reference (page)
Report of Independent Accountants 28
Consolidated Balance Sheets at
December 31, 1996 and 1995 29
Consolidated Statements of Income
for the years ended December 31,
1996, 1995 and 1994 30
Consolidated Statements of Changes in
Shareholder Equity for the years
ended December 31, 1996, 1995 and 1994 31
Consolidated Statements of Cash Flows
for the years ended December 31,
1996, 1995 and 1994 32
Notes to the Consolidated Financial Statements 33-48
All schedules are omitted for the reason they are not required, or are not
applicable, or the required information is disclosed elsewhere in the
financial statements and related notes thereto.
3. Exhibits:
16. Letter re change in certifying accountant
21. Subsidiaries of the Registrant
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during the three
month period ended December 31, 1996.
(c) Exhibits
See list of exhibits set forth on page 53.
(d) Separate Financial Statements and Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FARMERS CAPITAL BANK CORPORATION
By: /s/ Charles S. Boyd
Charles Scott Boyd
President and Chief Executive Officer
Date: 3/24/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/Charles S. Boyd President, Chief Executive Officer 3/24/97
Charles Scott Boyd and Director (principal executive
officer of the Registrant)
/s/John P. Stewart Chairman 3/26/97
John Poage Stewart
/s/J. Barry Banker Director 3/24/97
J. Barry Banker
/s/James E. Bondurant Director 3/21/97
James E. Bondurant
/s/G. Anthony Busseni Director 3/24/97
G. Anthony Busseni
/s/J.H. Childers Director 3/24/97
James H. Childers
/s/J.D. Sutterlin Director 3/25/97
John Douglas Sutterlin
/s/W. Benjamin Crain Director 3/24/97
W. Benjamin Crain
/s/Lloyd C. Hillard,Jr Director 3/21/97
Lloyd C. Hillard, Jr.
/s/Ellwood Bruce Dungan Director 3/24/97
Ellwood Bruce Dungan
/s/Harold G. Mays Director 3/27/97
Harold G. Mays
/s/Frank W. Sower, Jr Director 3/26/97
Frank W. Sower, Jr.
/s/C. Douglas Carpenter Vice President and CFO 3/20/97
Cecil Douglas Carpenter (principal financial and
accounting officer)
FARMERS CAPITAL BANK CORPORATION
INDEX OF EXHIBITS
16. Letter re change in certifying accountant
21. Subsidiaries of the Registrant
27. Financial Data Schedule
Exhibit 16
Letter re Change in Certifying Accountant
Coopers Suite 1800 Telephone (502)589-6100
& Lybrand, L.L.P. 500 West Main Street Facsimile (502)585-7775
Louisville, KY 40202-4264
March 5, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Farmers Capital Bank Corporation (copy
attached), which we understand will be filed with the Commission, pursuant to
Item 4 of Form 8-K, as part of the Company's Form 8-K report for the month of
March 1997. We agree with the statements concerning Coopers & Lybrand L.L.P. in
such Form 8-K.
Very truly yours,
/s/Coopers & Lybrand L.L.P.
JFF:jkh
Attachment
EXHIBIT 21
Subsidiaries of the Registrant
The following table provides a listing of the direct and indirect operating
subsidiaries of the Registrant, the percent of voting stock held by the
Registrant as of December 31, 1996 and the jurisdiction or organization in which
each subsidiary was incorporated or organized.
Percentage of Voting
Jurisdiction Stock held by
Subsidiaries of the Registrant of Organization Registrant
Farmers Bank & Capital Trust Co. Kentucky 100%
United Bank & Trust Company Kentucky 100%
First Citizens Bank, Hardin County, Inc. Kentucky 100%
Lawrenceburg National Bank Kentucky 100%
Farmers Bank and Trust Company Kentucky 100%
Horse Cave State Bank Kentucky 100%
FCB Services, Incorporated Kentucky 100%
Farmers Capital Insurance Company 1 Kentucky 100%
Farmers Bank Realty Company 2 Kentucky
Frankfort ATM Ltd. 3 Kentucky
Money One Credit of Kentucky. Inc. 2, 5 Kentucky
Money One Credit Company 4, 5 Kentucky
Leasing One Corporation 2 Kentucky
1 Dormant company, no activity to date.
2 A wholly-owned subsidiary of Farmers Bank & Capital Trust Company.
3 A fifty (50%) percent owned joint venture of Farmers Bank & Capital Trust
Company.
4 A partnership of which ninety-eight (98%) is owned by Farmers Bank & Capital
Trust Company, one (1%) percent is owned by Money One Credit of Kentucky, Inc.
and one (1%) percent is owned by Farmers Bank Realty Company.
5 On May 31, 1996 all of the loans and fixed assets were sold to unrelated third
parties. The remaining assets were distributed to their shareholders at the
close of business on December 31, 1996.
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This schedule contains summary financial information extracted from the December
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such financial statements.
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<INVESTMENTS-HELD-FOR-SALE> 109291
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<LOANS-PAST> 1822
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