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, 1997
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
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(Exact name of registrant as specified in its charter)
KENTUCKY 61-1017851
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
P.O. Box 309, 202 West Main St.
Frankfort, Kentucky 40601
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(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
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(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
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(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 6, 1998 was $239,878,870.
As of March 6, 1998, there were 3,777,620 shares issued and outstanding.
Documents incorporated by reference:
Proxy Statement for the annual meeting of shareholders scheduled to be held
May 12, 1998 - portions of which are incorporated by reference in Part I,
Item 1, Part III, and Part IV.
An index of exhibits filed with this Form 10-K can be found on page 58.
<PAGE>
FARMERS CAPITAL BANK CORPORATION
FORM 10-K
INDEX
Page
Part I
Item 1. Business 4
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 11
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 28
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 54
Part III
Item 10. Directors and Executive Officers of the Registrant 55
Item 11. Executive Compensation 55
Item 12. Security Ownership of Certain Beneficial Owners
and Management 55
Item 13. Certain Relationships and Related Transactions 55
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 56
Signatures 57
Index of Exhibits 58
<PAGE>
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 Co. ("Farmers Bank"), Frankfort, Kentucky; United
Bank & Trust Co. ("United Bank"), Versailles, Kentucky; Lawrenceburg National
Bank ("Lawrenceburg Bank"), Lawrenceburg, Kentucky; First Citizens Bank,
Elizabethtown, Kentucky; Farmers Bank and Trust Company ("Farmers Georgetown
Bank"), Georgetown, Kentucky; and Kentucky Banking Centers, Inc. ("Ky Banking
Centers" ), Glasgow, 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, 1997, the Registrant had $1.0 billion 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 chartered 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, 1997, it had total consolidated assets of $493 million, including
net loans of $252 million. On the same date, total deposits were $406 million
and shareholders' equity totaled $35 million.
Farmers Bank had two subsidiaries at year end 1997: Farmers Bank Realty Co.
("Realty") and Leasing One Corporation ("Leasing One"). Prior to 1997, Farmers
Bank had a third subsidiary, Money One Credit of Kentucky, Inc. ("Money One").
Farmers Bank, Realty and Money One 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 $3.4 million on December 31, 1997.
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, its 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
mentioned above, 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 was 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. Management is currently evaluating the
practicability of expanding its operations into various other states. In 1997,
it began to service leases for unaffiliated third parties. At year end it had
total assets of $16.1 million.
A fourth subsidiary of Farmers Bank, 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
partnership 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 automated 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. During 1997, it purchased a building in Midway for
the purpose of moving its existing Midway branch. The new building allows the
bank to offer drive thru services to its customers. United Bank is the largest
bank chartered in Woodford County with total assets of $111 million and total
deposits of $100 million at December 31, 1997.
Pursuant to Parity Letter number Two issued by the Kentucky Department of
Financial Institutions, which generally permits banks to sell insurance in
limited situations, 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. During 1997, it applied and was granted
permission by the Office of the Comptroller of the Currency to move its charter
and main office to Harrodsburg, Kentucky in Mercer County. The land has been
purchased to construct the new site, which is planned to be operating by late
1998. Lawrenceburg Bank will maintain its offices in Lawrenceburg. Lawrenceburg
Bank is the largest bank chartered in Anderson County with total assets of $96
million and total deposits of $87 million at December 31, 1997.
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. During 1997, it applied and was granted
permission by the Kentucky Department of Financial Institutions to move its
charter and main office to Hebron, Kentucky in Bullitt County. First Citizens
Bank is currently constructing a site in Hebron, Kentucky and expects the office
to open during 1998. First Citizens Bank will maintain its offices in
Elizabethtown, Kentucky. First Citizens Bank is the second largest bank
chartered in Elizabethtown with total assets of $119 million and total deposits
of $99 million at December 31, 1997.
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. This branch has
subsequently been relocated to a nearby site. Farmers Georgetown Bank is the
largest bank chartered in Scott County with total assets of $125 million and
total deposits of $112 million at December 31, 1997.
On June 15, 1987, the Registrant acquired Horse Cave Bank, a state chartered
bank originally organized in 1926. During 1997, it received approval from the
Kentucky Department of Financial Institutions to move its charter to Glasgow,
Kentucky in Barren County. Subsequent to that approval, Horse Cave State Bank
changed its name to Kentucky Banking Centers, Inc. Ky Banking Centers is engaged
in a general banking business providing full service banking to individuals,
businesses, and governmental customers. It conducts business in its principal
office in Glasgow and two branches in Hart County, Kentucky; Horse Cave and
Munfordville. Ky Banking Centers is the fourth largest bank chartered in Glasgow
with total assets of $80 million and total deposits of $70 million at December
31, 1997.
The Registrant's subsidiary banks make first and second residential mortgages
secured by the real estate not to exceed 90% loan to value without seeking third
party guarantees. Commercial real estate loans are secured by the real estate
not to exceed 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.
FCB Services, organized in 1992 and located in Frankfort, Kentucky, provides
data processing services and support for the Registrant and its subsidiaries.
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 regulation, supervision and examination by the Board of
Governors of the Federal Reserve System thereunder. It is required to file
various reports with the Federal Reserve Board ("FRB") regarding its business
operations and the business operations of its subsidiaries. In addition, the FRB
regulates the Registrant's business activities in a variety of other ways,
including, but not limited to, limitations on acquiring control of other banks
and bank holding companies, limitations on activities and investments, and
regulatory capital requirements.
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. Other
regulations that apply to the Registrant's bank subsidiaries include, but are
not limited to, insurance of deposit accounts, capital ratios, payment of
dividends, liquidity requirements, the nature and amount of investments that can
be made, transactions with affiliates, community and consumer lending, and
internal policies and control.
The operations of the Registrant and its subsidiaries 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 Institutions Reform, Recovery and Enforcement Act of 1989 provides
that a holding company's controlled insured depository institutions are liable
for any loss incurred by the Federal Deposit Insurance Corporation ("FDIC") in
connection with the default, of or any FDIC assisted transaction involving an
affiliated insured bank.
Deposits of the Registrant's subsidiary banks are insured by the FDIC Bank
Insurance Fund, which subjects the banks to regulation and examination under the
provisions of the Federal Deposit Insurance Act.
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 become 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 Registrant's six subsidiary banks, one has an
outstanding CRA rating and five 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 Registrant 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 Registrant.
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, 1997, the Registrant and its subsidiaries had 454 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.
During 1997, the Registrant's Board of Directors approved a Stock Option Plan
("Plan") which grants certain key employees the option to purchase a limited
number of the Registrant's common stock. The Plan specifies the conditions and
terms that the grantee must meet in order to exercise the options. The Plan is
subject to ratification by the Registrant's shareholders at the next annual
meeting to be held May 12, 1998. Information with respect to the Plan is
included in Appendix A of the Registrant's definitive proxy statement, which
will be filed with the Commission in March 1998, and is hereby incorporated by
reference.
ITEM 2. PROPERTIES
The Registrant leases its main office from Realty.
Farmers Bank and its subsidiaries currently own or lease nine buildings. Farmers
Bank operates at five locations, 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 located in a grocery store. First
Citizens Bank is currently constructing a new main office in Bullitt County,
Kentucky. 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. Ky Banking Centers is
currently constructing its new main office in Glasgow, Kentucky. Business is
currently being conducted at a temporary leased facility until construction is
complete. Ky Banking Centers also owns its branch site in Horse Cave, Kentucky
and leases its branch 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 Bank 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 Home in 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 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, 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 former 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 circuit court case was removed to the US Bankruptcy Court for the Eastern
District of Kentucky upon the motion of Farmers Bank. The bankruptcy court
accepted jurisdiction in the case. There is a motion pending by the defendants
to have the bankruptcy court abstain from taking jurisdiction. In the meantime,
Farmers Bank has moved for a summary judgement against the two corporate
defendants and the guarantors excluding Charles Bush Sr. The motion is based on
the obligations of the corporation and the guarantees of the other individuals.
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. Recently the plaintiff's attorney was suspended from the
practice of law in the Commonwealth of Kentucky for a period of one year. It is
not known what effect, if any the suspension will have on the plaintiff's
appeal.
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 liquidity, 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.
<PAGE>
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 table below is a
summary of the stock prices and dividends declared for 1997 and 1996.
Stock Prices
Dividends
High Low Declared
---- --- --------
1997
4th Quarter $69.50 $51.50 $0.48
3rd Quarter 53.00 40.50 0.41
2nd Quarter 42.00 39.50 0.41
1st Quarter 42.00 40.00 0.41
1996
4th Quarter $41.25 $39.25 $0.41
3rd Quarter 40.50 34.50 0.36
2nd Quarter 41.50 33.00 0.36
1st Quarter 42.50 38.50 0.36
As of January 1, 1998, there were 863 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, 1997, combined retained earnings of the subsidiary
banks were approximately $37,321,000 of which $7,241,000 was available for the
payment of dividends in 1998 without obtaining prior approval from bank
regulatory agencies. As a practical matter, payment of future dividends is also
subject to the maintenance of other capital ratio requirements.
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
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
December 31
(In thousands, except per share data) 1997 1996 1995 1994 1993
- ------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 67,360 $ 67,485 $ 67,261 $ 57,750 $ 54,612
Interest expense 27,450 28,703 28,115 21,586 21,768
Net interest income 39,910 38,782 39,146 36,164 32,844
Provision (credit) for loan losses 1,830 4,162 3,727 2,125 (2,026)
Net income 14,103 12,656 10,389 10,250 10,804
Per share data:
Net income - basic and diluted 3.73 3.29 2.69 2.65 2.79
Cash dividends declared 1.71 1.49 1.35 1.23 1.11
Book value 30.95 28.86 27.14 25.88 24.60
Total shareholders' equity 117,044 109,596 104,929 100,064 95,091
Total assets 1,014,183 925,319 906,113 851,703 794,269
Percentage of net income to:
Average shareholders' equity (ROE) 12.50% 11.80% 10.20% 10.55% 11.86%
Average total assets (ROA) 1.56 1.41 1.21 1.22 1.33
Percentage of dividends declared
to net income 45.90 45.21 50.24 46.40 39.78
Percentage of average shareholders'
equity to average total assets 12.46 11.94 11.81 11.57 11.22
Weighted average shares outstanding -
basic and diluted 3,786 3,842 3,866 3,866 3,866
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Farmers Capital Bank Corporation (the "Company") recorded net income of $14.1
million or $3.73 per share for 1997, up 11.4% from $12.7 million or $3.29 per
share reported for 1996. The increase in earnings is primarily due to the
reduction of the provision for loan losses of the Company's bank subsidiaries
and the reduction of the overhead expenses of the Company's former consumer
finance subsidiary in the amount of $1.5 million and $771 thousand,
respectively, net of tax. Return on average assets increased from 1.41% to 1.56%
and return on average equity increased from 11.80% to 12.50%.
INTEREST INCOME
Total interest income on a tax equivalent basis was $69.1 million, equaling the
results posted for 1996. Interest on investment securities decreased $87
thousand. This is made up of a decrease of $486 thousand on taxable investment
securities and an increase of $399 on nontaxable investment securities. The
decrease in interest earned on taxable investment securities is primarily
attributed to the $12.6 million dollar decrease in the average balance. The
average rate earned on these securities increased from 5.86% to 6.03%. The
increase in interest earned on nontaxable investment securities is primarily due
to the 7.3% increase in the average balance. The average rate earned on these
investment securities increased from 6.70% to 6.85%.
Interest on time deposits with banks, federal funds sold, and securities
purchased under agreements to resell totaled $2.6 million, a decrease of $122
thousand or 4.5%. The decrease is due primarily to the 7.6% decrease in the
average balances. Interest and fees on loans increased slightly from $53.1
million to $53.3 million. The increase is due to a combination of the change in
both volume and rate. Average loans increased $20.0 million while the average
rate earned on those loans decreased from 9.73% to 9.42%.
INTEREST EXPENSE
Total interest expense decreased $1.3 million or 4.4% from 1996. The decrease is
primarily due to the $1.3 million decrease in interest expense on time deposits,
which totaled $17.2 million at year end 1997. Interest expense on time deposits
decreased as a result of reductions in both volume and rate. Average time
deposits decreased $8.9 million or 2.7%, while the average rate paid decreased
25 basis points to 5.36%. Interest expense on other interest bearing liabilities
increased $36 thousand to $10.2 million at December 31, 1997.
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).
<PAGE>
<TABLE>
Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential
<CAPTION>
December 31, 1997 1996 1995
Average Average Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------- ------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Investment securities
Taxable $143,162 $ 8,635 6.03% $155,738 $ 9,121 5.86% $136,028 $ 7,923 5.82%
Nontaxable 1 66,500 4,553 6.85 61,981 4,154 6.70 50,852 3,376 6.64
Time deposits with banks,
federal funds sold and
securities purchased
under agreements
to resell 47,702 2,592 5.43 51,619 2,714 5.26 51,752 3,042 5.88
Loans 1,2,3 566,033 53,328 9.42 546,040 53,140 9.73 540,632 54,350 10.05
------- ------ ---- ------- ------ ---- ------- ------ -----
Total earning assets 823,397 69,108 8.39 815,378 69,129 8.48 779,264 68,691 8.81
Less allowance
for loan losses 8,871 8,610 8,774
----- ----- -----
Total earning assets, net
of allowance for loan
losses 814,526 806,768 770,490
NONEARNING ASSETS
Cash and due from banks 58,561 59,353 57,545
Premises and equipment 20,538 19,614 20,122
Other assets 12,295 12,874 14,001
------ ------ ------
Total assets $ 905,920 $ 898,609 $ 862,158
========= ========= =========
INTEREST BEARING LIABILITIES
Deposits
Interest bearing demand $ 172,803 $ 4,219 2.44% $ 165,551 $ 4,014 2.42% $156,937 4,176 2.66%
Savings 141,961 4,469 3.15 145,134 4,642 3.20 141,934 4,794 3.38
Time 321,376 17,225 5.36 330,294 18,514 5.61 312,140 17,304 5.54
Securities sold under
agreements to repurchase 27,975 1,332 4.76 25,706 1,314 5.11 28,889 1,584 5.48
Other borrowed funds 3,345 205 6.13 3,719 219 5.89 4,444 257 5.78
----- --- ---- ----- --- ---- ----- --- ----
Total interest bearing
liabilities 667,460 27,450 4.11 670,404 28,703 4.28 644,344 28,115 4.36
------ ---- ------ ---- ------ ----
NONINTEREST BEARING LIABILITIES
Commonwealth of Kentucky
deposits 27,214 25,713 26,093
Other demand deposits 90,127 86,486 84,666
Other liabilities 8,270 8,720 5,212
----- ----- -----
Total liabilities 793,071 791,323 760,315
Shareholders' equity 112,849 107,286 101,843
------- ------- -------
Total liabilities and
shareholders' equity $ 905,920 $ 898,609 $ 862,158
========= ========= =========
Net interest income (TE) 41,658 40,426 40,576
TE basis of adjustment (1,748) (1,644) (1,430)
------ ------ ------
Net interest income $ 39,910 $ 38,782 $ 39,146
========= ========= =========
Net interest spread (TE) 4.28% 4.20% 4.45
Net interest margin (TE) 5.06% 4.96% 5.21
</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 nonaccrual loans.
3 Loan fees included in interest income amounted to $1,573,000,
$1,977,000, and $1,781,000, in 1997, 1996 and 1995, respectively.
NET INTEREST INCOME
Net interest income (TE) increased $1.2 million to $41.7 million. Interest
income was relatively unchanged while interest expense decreased $1.3 million.
The change in the spread between rates earned and paid and net interest margin
are summarized below:
1997 1996 % change
---- ---- --------
Spread between rates earned and paid 4.28% 4.20% 1.9%
Net interest margin 5.06% 4.96% 2.0%
The increase in the net interest spread and the net interest margin are
primarily due to a decrease in interest expense on interest bearing liabilities.
As seen in the Interest Rates and Interest Differential table, less interest
expense was incurred in 1997 on lower average interest bearing liabilities.
This, combined with interest income on earning assets that remained relatively
unchanged, produced the increased margin and spread.
The following table is an analysis of the change in net interest income.
ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAX EQUIVALENT BASIS)
<TABLE>
<CAPTION>
Variance Variance Attributed to Variance Variance Attributed to
(In thousands) 1997/1996 1 Volume Rate 1996/1995 1 Volume Rate
- -------------- ----------- ------ ---- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Taxable investment securities $ (486) $ (747) 261 $ 1,198 $ 1,154 $ 44
Nontaxable investment securities2 399 305 94 778 747 31
Time deposits with banks, federal
funds sold and securities
purchased under agreement
to resell (122) (209) 87 (328) (8) (320)
Loans2 188 1,911 (1,723) (1,210) 540 (1,750)
--- ----- ------ ------ --- ------
Total interest income (21) 1,260 (1,281) 438 2,433 (1,995)
INTEREST EXPENSE
Interest bearing demand deposits 205 172 33 (162) 221 (383)
Savings deposits (173) (101) (72) (152) 106 (258)
Time deposits (1,289) (486) (803) 1,210 1,016 194
Securities sold under agreements
to repurchase 18 111 (93) (270) (168) (102)
Other borrowed funds (14) (23) 9 (38) (43) 5
--- --- --- --- ---- -----
Total interest expense (1,253) (327) (926) 588 1,132 (544)
------ ---- ---- --- ----- ----
Net interest income 1,232 1,587 (355) $ (150) $ 1,301 (1,451)
===== ===== ==== ======= ======= ======
Percentage change 100.0% 128.8% (28.8)% 100.0% (867.3)% 967.3%
</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 increase in net interest income is primarily
attributed to the decrease in rates paid on interest bearing liabilities.
NONINTEREST INCOME
Noninterest income for 1997 totaled $12.5 million, a decrease of $2.5 million or
16.5% from $15.0 million in 1996. The decrease is due primarily to the $3.2
million gain on the sale of loans of the Company's consumer finance subsidiary
recorded in 1996. Other service charges, commissions, and fees increased $657
thousand in 1997 compared to 1996. Other noninterest income remained relatively
unchanged from year end 1996.
NONINTEREST EXPENSE
Noninterest expense decreased $1.1 million to $30.7 million at December 31,
1997. The decrease is primarily due to a $1.1 million, or 6.3% decrease in
salaries and employee benefits. A significant portion of this decrease is a
result of the sale of the Company's consumer finance subsidiary during 1996.
Other expense reductions are as follows: a $45 thousand, or 2.3% decrease in
occupancy expense, and a $321 thousand, or 4.1% decrease in other expenses.
These decreases were partially offset by increases in equipment expense of $129
thousand, or 5.0%, data processing expense of $98 thousand, or 10.2%, bank
franchise tax of $25 thousand or 2.4%, and deposit insurance expense of $86
thousand.
INCOME TAX
Income tax expense for 1997 was $5.8 million, an increase of 12.4% from $5.2
million in 1996. The effective tax rate for 1997 was 29.2%, an increase of 2
basis points from the prior year.
FINANCIAL CONDITION
On December 31, 1997, assets were $1.0 billion, an increase of $89 million or
9.6% from year end 1996. The increase in assets is primarily due to the
relationship between the Company's lead bank, Farmers Bank & Capital Trust Co.,
and the Commonwealth of Kentucky. Farmers Bank is the depository for the
Commonwealth of Kentucky. As such, large fluctuations in deposits are likely to
occur on a daily basis. On December 31, 1997, Farmers Bank received a
significant deposit from the Commonwealth which pushed total assets over $1
billion. On an average basis, assets increased $7 million, or less than 1% to
$906 million for 1997. Earning assets, primarily loans and investments, averaged
$823 million, up $8 million or 1.0%.
LOANS
As of December 31, 1997, net loans totaled $586 million, an increase of $28
million or 5.0% from $558 million in the prior year. Installment loans increased
$2.1 million or 2.5%. Real estate mortgage loans increased $29.3 million, or
9.6% and lease financing increased $2.6 million, or 9.0%. Commercial and real
estate construction loans decreased $6.7 million, or 4.5%.
The composition of the loan portfolio is summarized in the table below.
<TABLE>
<CAPTION>
Year Ended December 31, (In thousands) 1997 % 1996 % 1995 % 1994 % 1993 %
- -------------------------------------- ---- - ---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $114,377 19.2% $120,256 21.2% $114,412 20.6% $115,068 21.1 $108,755 22.2%
Real estate - construction 26,299 4.4 27,098 4.8 26,380 4.8 28,755 5.3 21,772 4.4
Real estate - mortgage 334,612 56.3 305,229 53.8 292,913 52.8 279,264 51.3 262,074 53.5
Installment 87,835 14.8 85,720 15.1 99,571 17.9 107,450 19.7 95,544 19.5
Lease financing 31,759 5.3 29,144 5.1 21,666 3.9 14,029 2.6 2,200 0.4
------ --- ------ --- ------ --- ------ --- ----- ---
Total $594,882 100.0% $567,447 100.0% $554,942 100.0% $544,566 100.0% $490,345 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The following table indicates the amount of loans (excluding real estate
mortgages, consumer loans, and lease financing) outstanding at December 31,
1997, which, based on remaining scheduled repayments of principal, are due in
the periods indicated.
MATURING
<TABLE>
<CAPTION>
Within After One But After
(In thousands) One Year Within Five Years Five Years Total
- -------------- -------- ----------------- ---------- -----
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 85,057 $ 25,562 $ 3,758 $114,377
Real estate - construction 23,999 1,740 560 26,299
------ ----- --- ------
Total $109,056 $ 27,302 $ 4,318 $140,676
======== ======== ======== ========
</TABLE>
The table below shows the amount of loans (excluding real estate mortgages,
consumer loans, and lease financing) outstanding at December 31, 1997, 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 $23,405 $3,897
Due after five years 4,231 87
----- --
Total $27,636 $3,984
======= ======
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 classified loans
The provision for loan losses decreased $2.3 million in 1997 compared to 1996.
The Company had net charge offs of $1.5 million, down $2.4 million from $3.9
million in 1996. The allowance was 1.56% of net loans, relatively unchanged from
1.57% at the end of 1996. Management believes the current reserve is adequate to
cover any potential future losses within the loan portfolio. Management also
continues to emphasize collection efforts and evaluation of risks within the
portfolio.
The table below summarizes the loan loss experience for the past five years.
<TABLE>
<CAPTION>
Year Ended December 31, (In thousands) 1997 1996 1995 1994 1993
- -------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE OF ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF PERIOD $ 8,741 $ 8,472 $ 8,889 $ 8,547 $ 8,261
Loans charged off:
Commercial, financial, and agricultural 720 1,609 2,390 741 1,826
Real estate 465 920 118 416 638
Installment loans to individuals 1,133 1,862 2,376 1,467 1,483
Lease financing 433 18
----- ----- ----- ----- -----
Total loans charged off 2,751 4,409 4,884 2,624 3,947
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 437 144 192 193 343
Real estate 527 38 146 230 5,409
Installment loans to individuals 330 334 402 418 507
--- --- --- --- ---
Total recoveries 1,294 516 740 841 6,259
----- --- --- --- -----
Net loans charged off (recovered) 1,457 3,893 4,144 1,783 (2,312)
Additions to allowance charged
(credited) to expense 1,830 4,162 3,727 2,125 (2,026)
----- ----- ----- ----- ------
Balance at end of period 9,114 $ 8,741 $ 8,472 $ 8,889 $ 8,547
===== ========= ========= ========= =========
Average loans
net of unearned income $ 566,033 $ 546,040 $ 540,632 $ 511,492 $ 467,738
Ratio of net charge offs (recoveries)
during period to average loans, net
of unearned income .26% .71% .77% .35% (.49)%
</TABLE>
The following is an estimate of the breakdown of the allowance for loan losses
by type for the date indicated.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
Year Ended December 31, (In thousands) 1997 1996 1995 1994 1993
- -------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $2,942 $3,806 $4,138 $6,427 $6,500
Real estate 4,324 2,974 1,928 1,027 1,004
Installment loans to individuals 1,417 1,304 2,176 1,264 1,035
Lease financing 431 657 230 171 8
--- --- --- --- ---
Total $9,114 $8,741 $8,472 $8,889 $8,547
====== ====== ====== ====== ======
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets increased $73 thousand, or 1.1% to $6.6 million at year end
1997. As a percentage of loans and other real estate owned, nonperforming assets
were 1.1% in 1997 and 1.2% in 1996. Since 1992, nonperforming assets have
decreased $10.9 million, or 62.1%. The largest reductions have been in other
real estate owned and restructured loans. Other real estate owned has decreased
$5.5 million, or 99.5% and restructured loans have decreased $4.0 million, or
75.6% since 1992. 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.
<TABLE>
<CAPTION>
Year Ended December 31, (In thousands) 1997 1996 1995 1994 1993
- -------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans accounted for on nonaccrual basis $3,137 $2,938 $2,897 $3,913 $1,565
Loans past due 90 days or more 2,196 1,822 1,713 1,056 1,402
Restructured loans 1,285 1,814 1,571 3,538 3,734
Other real estate owned 29 776 380 1,169
---- ---- ---- ---- -----
Total nonperforming assets $6,647 $6,574 $6,957 $8,887 $7,870
====== ====== ====== ====== ======
</TABLE>
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 1997, temporary investments
averaged $47.7 million, a decrease of $3.9 million, or 7.6% from their average
in 1996. Temporary investment funds are reallocated as loan demand presents the
opportunity.
INVESTMENT SECURITIES
The majority of the investment securities portfolio is comprised of U.S.
Treasury securities, Federal agency securities, tax-exempt securities, and
mortgage-backed securities. Total investment securities were $215 million on
December 31, 1997, a decrease of $6 million, or 2.8% from year end 1996.
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 the
Company's 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 $119 million
and $96 million, respectively. Total investment securities averaged $210
million, a decrease of $8 million, or 3.7% from year end 1996. The unrealized
gain, net of tax effect, on available for sale securities, was $100 thousand on
December 31, 1997.
The following table summarizes the carrying values of investment securities on
December 31, 1997, 1996, and 1995. 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.
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
Available Held to Available Held to Available Held to
(In thousands) for sale maturity for sale maturity for sale maturity
- -------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 25,789 $ 1,000 $ 27,453 $ 2,000 $ 16,668 $ 15,994
Obligations of U.S.
Government agencies 59,053 16,149 62,744 28,581 77,624 34,732
Obligations of states and political
subdivisions 69,662 66,348 57,114
Mortgage-backed securities 30,543 8,875 15,329 14,680 10,251 13,151
Corporate debt 184 842 700
Equity securities 3,507 2,923 690
------ ------ ------ ------ ------ ------
Total $119,076 $ 95,686 $109,291 $111,609 $105,933 $120,991
======== ======== ======== ======== ======== ========
</TABLE>
The following is an analysis of the maturity distribution and weighted average
interest rates of investment securities at December 31, 1997. For purposes of
this analysis, available for sale securities are stated at fair value and held
to maturity securities are valued at amortized cost. Equity securities in the
available for sale portfolio consist primarily of Federal Home Loan Bank (FHLB)
stock, which has no stated maturity date.
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Within After One But After Five But After
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 $12,989 5.36% $12,800 5.84%
Obligations of U.S.
Government agencies 29,512 5.16 27,533 6.35 $ 2,008 7.47%
Mortgage-backed securities 217 6.40 2,200 5.99 21,258 6.93 $ 6,868 6.98%
Corporate debt 184 7.52
------- ---- ------- ---- ------- ---- ------- ----
Total $42,718 5.23% $42,717 6.18% $23,266 6.33% $ 6,868 6.98%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
HELD TO MATURITY
<TABLE>
<CAPTION>
Within After One But After Five But After
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 5.53%
Obligations of U.S.
Government agencies 6,998 5.35 $ 6,650 6.15% $ 2,500 7.13%
Obligation of states and
political subdivisions 9,460 7.00 34,974 6.90 20,549 7.38 $ 4,679 7.45%
Mortgage-backed securities 2,222 6.86 6,654 6.62
------- ---- ------- ---- ------- ---- ------- ----
Total $17,458 6.23% $43,846 6.82% $29,703 7.19% $ 4,679 7.45%
======= ==== ======= ==== ======= ==== ======= ====
</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 are computed on a taxable
equivalent basis using a 34% tax rate.
DEPOSITS
On December 31, 1997, deposits totaled $835 million, an increase of $49 million,
or 6.2% from year end 1996. Deposits averaged $753 million in 1997, virtually
unchanged from 1996.
During 1997 total average interest bearing deposits decreased $5 million, or
0.8% to $636 million while average noninterest bearing deposits increased $5
million, or 4.6% to $117 million.
The primary decrease in interest bearing deposits is due to an $8.9 million
decrease in average time deposits. Average savings deposits also experienced a
$3.2 million decline in 1997. These decreases were partially offset by an
increase in average interest bearing demand deposits of $7.3 million, or 4.4%.
A summary of average balances and rates paid on deposits follows.
1997 1996 1995
Average Average Average Average Average Average
(In thousands) Balance Rate Balance Rate Balance Rate
- -------------- ------- ---- ------- ---- ------- ----
Noninterest bearing demand $117,341 0.0 $112,199 0.0 $110,759 0.00%
Interest bearing demand 172,803 2.4 165,551 2.4 156,937 2.66
Savings 141,961 3.1 145,134 3.2 141,934 3.38
Time 321,376 5.3 330,294 5.6 312,140 5.54
------- ------- -------
Total $753,481 $753,178 $721,770
======== ======== ========
Maturities of time deposits of $100,000 or more outstanding at December 31, 1997
are summarized as follows:
Time Deposits
(In thousands) $100,000 or more
- -------------- ----------------
3 months or less $11,663
Over 3 through 6 months 10,639
Over 6 through 12 months 19,151
Over 12 months 18,073
------
Total $59,526
=======
SHORT-TERM BORROWINGS
Short-term borrowings are made up primarily of securities sold under agreement
to repurchase with balances of $49,251,00, $16,594,000, and $34,638,000 in 1997,
1996, and 1995, respectively. A summary of short-term borrowings is as follows.
(In thousands) 1997 1996 1995
- -------------- ---- ---- ----
Amount outstanding at year end $50,602 $16,594 $34,638
Maximum outstanding at any month end 50,602 59,452 55,929
Average outstanding 28,117 25,706 28,889
Weighted average rate during the year 4.75% 5.11% 5.48%
Weighted average interest rate at year end 5.37 5.17 5.48
Such borrowings are generally on an overnight basis.
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
The liquidity of the Company is dependent on the receipt of dividends from its
subsidiary banks (see Note 17 to the consolidated 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.
Liquid assets consist of cash and due from banks, short-term investments, and
securities available for sale. At December 31, 1997, such assets totaled $306
million.
For the year ended December 31, 1997, cash and due from banks increased $24
million to $76 million compared with an $11 million increase during the previous
year period. Net cash provided by operating activities decreased $3 million in
the comparison. Net cash used in investing activities increased $16 million. Net
cash provided by financing activities totaled $75 million for the year 1997,
compared to $5 million in 1996.
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 earning 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, 1997
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.
Rate Sensitivity Analysis as of December 31, 1997
<TABLE>
<CAPTION>
After Three After
Months But One Year But
Within Within Twelve Within Five After
(In millions) Three Months Months Years Five Years Total
- ------------- ------------ ------ ----- ---------- -----
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Investment securities $ 47.9 $ 27.2 $ 92.2 $ 47.5 $ 214.8
Federal funds sold 109.6 109.6
Loans, net of unearned income 194.3 180.4 193.9 17.3 585.9
----- ----- ----- ---- -----
Total $ 351.8 $ 207.6 $ 286.1 $ 64.8 $ 910.3
Percentage of total interest
earning assets 38.6% 22.8% 31.4% 7.1% 100.0%
RATE SENSITIVE SOURCES OF FUNDS USED
TO FINANCE INTEREST EARNING ASSETS
Interest bearing demand deposits $ 216.8 $ 216.8
Savings 145.7 6.2 151.9
Time 53.7 122.9 132.6 5.5 314.7
Other borrowed funds 50.3 .3 .5 2.6 53.7
---- ----- ----- --- ----
Total $ 466.5 $ 123.2 $ 133.1 $ 14.3 $ 737.1
Percent of total rate sensitive
sources of funds 63.3% 16.7% 18.1% 1.9% 100.0%
Interest sensitivity gap (114.7) 84.4 153.0 50.5 173.2
Cumulative interest sensitivity gap (114.7) (30.3) 122.7 173.2
Interest sensitive assets to interest
sensitive liabilities .75 1.69 2.15 4.53 1.23
Cumulative ratio of interest sensitive assets
to interest sensitive liabilities .75 .95 1.17 1.23
Cumulative gap as a percent of total
earning assets (12.6)% (3.3)% 13.5% 19.0%
</TABLE>
CAPITAL RESOURCES
Shareholders equity was $117 million on December 31, 1997, increasing $7.4
million, or 6.8% from year end 1996. During 1996, the Company announced that it
would purchase up to 200,000 share of its outstanding common stock as market
conditions permit. At December 31, 1997 the Company has purchased a total of
85,162 shares under this plan for a total cost of approximately $3.4 million.
During 1997 the Company purchased 15,762 shares of its outstanding common stock
for a total cost of $644 thousand. Dividends of $6.5 million were declared
during the year. This includes a 17.1% increase in the quarterly dividend rate
in the fourth quarter of 1997 from $.41 per share to $.48 per share. The
Company's capital ratios as of December 31, 1997, the regulatory minimums and
the regulatory standard for a well capitalized institution are as follows.
Farmers Capital Regulatory Well
Bank Corporation Minimum Capitalized
---------------- ------- -----------
Tier 1 risk based 18.73% 4.00% 6.00%
Total risk based 19.98 8.00 10.00
Leverage 12.73 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, 1997.
The table below is an analysis of dividend payout ratios and equity to asset
ratios for the previous five years.
December 31, 1997 1996 1995 1994 1993
- ------------ ---- ---- ---- ---- ----
Percentage of dividends declared
to net income 45.90% 45.21% 50.24% 46.40% 39.78%
Percentage of average shareholders'
equity to average total assets 12.46 11.94 11.81 11.57 11.22
SHAREHOLDER INFORMATION
As of January 1, 1998, there were 863 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 1997
and 1996.
STOCK PRICES
Dividends
High Low Declared
---- --- --------
1997
Fourth Quarter $69.50 $51.50 $0.48
Third Quarter 53.00 40.50 0.41
Second Quarter 42.00 39.50 0.41
First Quarter 42.00 40.00 0.41
1996
Fourth Quarter $41.25 $39.25 $0.41
Third Quarter 40.50 34.50 0.36
Second Quarter 41.50 33.00 0.36
First Quarter 42.50 38.50 0.36
Dividends declared per share increased $.22 or 14.8% and $.14, or 10.4% for the
years 1997 and 1996, respectively.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Year 2000 problem
arises when computer programs use two digits rather than four to define the
applicable year. Some systems may treat the year 2000 as the year 1900. This
could result in a major system failure or miscalculations. A number of computer
systems which are affected by the Year 2000 are utilized by the Company to
operate its day-to-day business. Most of these systems use software developed by
and licensed from third party software vendors.
The Company is utilizing both internal and external resources to identify,
correct, and test the Company's systems for Year 2000 compliance. The Company is
actively managing all of its third party software vendors to determine that
software corrections and warranty commitments are obtained. The Company believes
that mission critical applications are Year 2000 compliant. Most of the systems
testing will be completed in 1998, with the remainder scheduled to be completed
during the first quarter of 1999. The Company believes that the costs associated
with Year 2000 compliance will be absorbed in routine annual software
maintenance contracts and are not likely to be incremental costs to the Company.
The Company does not anticipate future material expenditures in order to become
Year 2000 compliant.
ACCOUNTING REQUIREMENTS EFFECTIVE IN 1998
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS
130") and Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). SFAS 130 defines
comprehensive income as the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. The Statement requires comprehensive income to be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This Statement is effective for fiscal years
beginning after December 15, 1997. The Company does not expect the
implementation of this Statement to have a material effect on the consolidated
financial statements.
SFAS 131 changes the way public companies report information about segments of
their business in their annual financial statements and requires them to report
selected segment information in their quarterly report to shareholders. This
Statement requires that companies disclose segment data based on how management
makes decisions about allocating resources to segments and measuring their
performance. This Statement is effective in 1998. In the initial year of
application, this Statement is not required to be applied to interim periods.
The Company does not expect the implementation of this Statement to have a
material effect on the consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included herein will prove to be accurate. Factors that could cause actual
results to differ from the results discussed in the forward-looking statements
include, but are not limited to: economic conditions (both generally and more
specifically in the markets in which the Company and its subsidiaries operate);
competition for the Company's customers from other providers of financial
services; government legislation and regulation (which changes from time to time
and over which the Company has no control); changes in interest rates; material
unforeseen changes in the liquidity, results of operations, or financial
condition of the Company's customers; and other risks detailed in the Company's
filings with the Securities and Exchange Commission, all of which are difficult
to predict and many of which are beyond the control of the Company.
1996 COMPARED WITH 1995
Net income was $12.7 million in 1996 compared to $10.4 million in 1995, an
increase of $2.3 million. Net income per share increased from $2.69 to $3.29.
The increase in net income is primarily due to the $3.2 million pre-tax gain on
the sale of loans of the Company's consumer finance subsidiary during the second
quarter of 1996. This gain also contributed to the increase in the Company's
performance ratios for 1996. The return on average assets and average equity
increased from 1.21% to 1.41% and from 10.20% to 11.80%, respectively.
Total interest income, on a tax equivalent basis was $69.1 million, up $438
thousand, less than 1% from 1995. The largest contributors to the increase were
in investment securities. Average investment securities increased $30.8 million,
or 16.5%.
Total interest expense was $28.7 million, up $588 thousand, or 2.1%. The
increase was primarily due to increases in the volume of time deposits and the
rate paid on time deposits. The average balance of time deposits increased 5.8%
and the average rate paid increased from 5.54% to 5.61%.
Net interest income on a tax equivalent basis was relatively unchanged at $40.4
million. Total interest income increased $438 thousand while total interest
expense increased $588 thousand. The spread between rates earned and paid was
4.20%, a 5.62% decrease from 1995, while the net interest margin decreased 4.80%
from 5.21% to 4.96%.
Noninterest income increased $3.2 million to $15.0 million in 1996. The increase
is due primarily to the gain on the sale of loans of Money One, the
Corporation's consumer finance subsidiary. Service charges on deposits and trust
fees experienced moderate growth.
Noninterest expense decreased $626 thousand or 1.9%. The decline is a result of
decreases in equipment expense and deposit insurance expense in the amounts of
$109 thousand and $815 thousand, respectively. These declines were partially
offset by a $458 thousand increase in salaries and benefits and slight increases
in occupancy expense and bank franchise tax.
Income tax expense was $5.2 million in 1996, up $806 thousand from 1995, which
correlates to the increase in income before taxes. The effective tax rate for
1996 was 29.0% compared to 29.6% in 1995.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK MANAGEMENT
Market risk is the risk of loss arising from adverse changes in market prices
and rates. The Company's market risk is comprised primarily of interest rate
risk created by its core banking activities of extending loans and receiving
deposits. Many factors, including economic and financial conditions, general
movements in market interest rates, and consumer preferences, affect the spread
between interest earned on assets and interest paid on liabilities. The
Company's primary purpose in managing interest rate risk is to effectively
invest the Company's capital and to manage and preserve the value created by its
core banking business.
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates. For each balance sheet item
listed below, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates.
<TABLE>
<CAPTION>
PRINCIPAL CASH FLOWS AND RELATED WEIGHTED AVERAGE INTEREST RATES
Fair
December 31, (Dollars in thousands) 1998 1999 2000 2001 2002 Thereafter Total Value
- ----------------------------------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Interest bearing due from banks $ 1,300 $ 1,300 $ 1,300
Average interest rate 5.79% 5.79%
Federal funds sold and securities
purchased under agreements to
resell 109,610 109,610 109,610
Average interest rate 6.18 6.18
Investment debt securities
Fixed rate 48,697 $ 24,248 $ 19,165 $ 30,412 $ 12,750 $ 64,517 199,789 200,644
Average interest rate 5.74 5.85% 5.58% 5.89% 5.82% 6.27% 5.94
Variable rate 11,466 11,466 11,466
Average interest rate 4.50 4.50
Loans, net
Fixed rate 210,032 58,457 43,625 28,623 21,656 13,339 375,732 374,217
Average interest rate 9.22 9.13 9.59 9.12 9.00 8.68 9.11
Variable rate 163,921 12,344 11,527 8,825 13,060 531 210,208 210,208
Average interest rate 10.20 8.97 8.59 8.28 8.09 8.27 9.07
RATE SENSITIVE LIABILITIES
Noninterest bearing checking $151,600 $151,600 $151,600
Savings and interest bearing checking 368,738 368,738 368,738
Average interest rate 2.53% 2.53%
Time deposits 176,516 $ 90,559 $ 34,937 $ 4,810 $ 2,308 $ 5,508 314,638 314,926
Average interest rate 5.20 5.73% 5.26% 6.37% 5.27% 5.66% 5.45
Fixed interest rate borrowings 42,980 841 228 228 228 1,418 45,923 46,008
Average interest rate 5.71 5.95 7.75 7.75 7.75 7.75 5.81
Variable interest rate borrowings 7,732 7,732 7,732
Average interest rate 2.66 2.66
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Farmers Capital Bank Corporation
We have audited the accompanying consolidated balance sheet of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 1997, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Farmers
Capital Bank Corporation and Subsidiaries as of December 31, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Louisville, Kentucky
January 15, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Farmers Capital Bank Corporation
We have audited the accompanying consolidated balance sheet of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 1996 and the related
consolidated statements of income, shareholders equity and cash flows for each
of the two 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 the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
January 16, 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (In thousands, except share data) 1997 1996
- ---------------------------------------------- ---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 75,830 $ 52,073
Interest bearing deposits in other banks 1,300 758
Federal funds sold and securities purchased under
agreement to resell 109,610 69,915
------- ------
Total cash and cash equivalents 186,740 122,746
Investment securities:
Available for sale 119,076 109,291
Held to maturity 95,686 111,609
------ -------
Total investment securities 214,762 220,900
Loans, net of unearned income 585,940 558,249
Allowance for loan losses (9,114) (8,741)
------ ------
Loans, net 576,826 549,508
Premises and equipment 21,214 19,320
Accrued interest receivable 7,805 8,129
Other assets 6,836 4,716
----------- -----------
Total assets $ 1,014,183 $ 925,319
=========== ===========
LIABILITIES
Deposits:
Noninterest bearing $ 151,600 $ 103,488
Interest bearing 683,376 682,822
------- -------
Total deposits 834,976 786,310
Other borrowed funds 53,655 20,165
Dividends payable 1,815 1,558
Accrued interest payable 1,956 2,204
Other liabilities 4,737 5,486
------- -------
Total liabilities 897,139 815,723
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, par value $.25 per share; 4,804,000 shares
authorized; 3,781,220 and 3,796,982 shares issued and
outstanding at December 31, 1997 and 1996, respectively 945 949
Capital surplus 8,894 8,931
Retained earnings 107,105 100,078
Unrealized gain (loss) on securities available for sale,
net of tax 100 (362)
------- -------
Total shareholders' equity 117,044 109,596
----------- -----------
Total liabilities and shareholders' equity $ 1,014,183 $ 925,319
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the years ended December 31, 1997 1996 1995
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $52,991 $52,778 $53,965
Interest on investment securities:
Taxable 8,635 9,121 7,923
Nontaxable 3,142 2,872 2,331
Interest on deposits in other banks 114 61 116
Interest on federal funds sold and securities
purchased under agreement to resell 2,478 2,653 2,926
----- ----- -----
Total interest income 67,360 67,485 67,261
INTEREST EXPENSE
Interest on deposits 25,913 27,170 26,274
Interest on other borrowed funds 1,537 1,533 1,841
----- ----- -----
Total interest expense 27,450 28,703 28,115
------ ------ ------
Net interest income 39,910 38,782 39,146
Provision for loan losses 1,830 4,162 3,727
----- ----- -----
Net interest income after provision
for loan losses 38,080 34,620 35,419
NONINTEREST INCOME
Service charges and fees on deposits 5,325 5,258 5,060
Other service charges, commissions and fees 3,814 3,157 3,052
Data processing income 1,458 1,373 1,397
Trust income 1,137 1,161 1,121
Investment securities gains, net 10 2
Gain on sale of Money One loans 3,206
Other 780 824 1,111
------ ------ ------
Total noninterest income 12,514 14,989 11,743
NONINTEREST EXPENSE
Salaries and employee benefits 16,168 17,246 16,788
Occupancy expenses, net 1,950 1,995 1,982
Equipment expenses 2,732 2,603 2,712
Data processing expense 1,056 958 861
Bank franchise tax 1,070 1,045 1,000
Deposit insurance expense 97 11 826
Other 7,596 7,917 8,232
----- ----- -----
Total noninterest expense 30,669 31,775 32,401
------ ------ ------
Income before income taxes 19,925 17,834 14,761
Income tax expense 5,822 5,178 4,372
----- ----- -----
Net income $14,103 $12,656 $10,389
======= ======= =======
Net income per common share - basic and diluted $ 3.73 $ 3.29 $ 2.69
Weighted average shares outstanding - basic and diluted 3,786 3,842 3,866
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except per share data) Unrealized
Gain (Loss)
Common on Securities Total
For the years ended Stock Capital Retained Available for Sale, Shareholders'
December 31, 1997, 1996, and 1995 Shares Amount Surplus Earnings net of tax Equity
- --------------------------------- ------ ------ ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 3,866 $ 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
Change in unrealized loss on securities
available for sale, net of tax (305) (305)
----- --- ----- ------ ---- -------
Balance at December 31, 1995 3,866 967 9,094 95,694 (826) 104,929
Cash dividends declared, $1.49 per share (5,722) (5,722)
Purchase of common stock (69) (18) (163) (2,550) (2,731)
Net income 12,656 12,656
Change in unrealized loss on securities
available for sale, net of tax 464 464
----- --- ----- ------ ---- -------
Balance at December 31, 1996 3,797 949 8,931 100,078 (362) 109,596
Cash dividends declared, 1.71 per share (6,473) (6,473)
Purchase of common stock (16) (4) (37) (603) (644)
Net income 14,103 14,103
Change in unrealized loss on securities
available for sale, net of tax 462 462
----- --- ----- ------ ---- -------
Balance at December 31, 1997 3,781 $ 945 $ 8,894 $ 107,105 $ 100 $ 117,044
===== ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (In thousands) 1997 1996 1995
- ----------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,103 $ 12,656 $ 10,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,587 2,477 2,634
Net amortization of investment security
premiums and discounts:
Available for sale (84) (388) (818)
Held to maturity 77 111 240
Provision for loan losses 1,830 4,162 3,727
Mortgage loans originated for sale (9,080) (8,017) (14,730)
Proceeds from sale of mortgage loans 9,017 7,955 14,730
Deferred income tax expense 633 512 732
Gain on sale of mortgage loans (19) (18)
Gain on sale of Money One loans (3,206)
Gain on sale of fixed assets (8) (150)
Gain on call of investment securities:
Held to maturity (10) (2)
Decrease (increase) in accrued interest receivable 324 (240) (1,111)
(Increase) decrease in other assets (3,523) 491 (1,078)
(Decrease) increase in accrued interest payable (248) (166) 655
(Decrease) increase in other liabilities (749) 1,449 476
---- ----- ---
Net cash provided by operating activities 14,860 17,618 15,844
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities:
Available for sale 118,918 132,172 84,897
Held to maturity 33,767 39,175 51,855
Purchases of investment securities:
Available for sale (127,920) (134,440) (118,004)
Held to maturity (17,921) (29,894) (52,607)
Loans originated for investment, net of principal collected (29,066) (31,123) (14,134)
Purchases of premises and equipment (4,094) (1,594) (1,413)
Proceeds from sale of equipment 154 399
Proceeds from sale of Money One loans 15,447
------- ------ -------
Net cash used in investing activities (26,162) (9,858) (49,406)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 48,666 31,449 58,166
Dividends paid (6,216) (5,557) (5,103)
Purchase of common stock (644) (2,731)
Net increase (decrease) in other borrowed funds 33,490 (18,359) (9,868)
------ ------- ------
Net cash provided by financing activities 75,296 4,802 43,195
------ ----- ------
Net change in cash and cash equivalents 63,994 12,562 9,633
Cash and cash equivalents at beginning of year 122,746 110,184 100,551
------- ------- -------
Cash and cash equivalents at end of year $ 186,740 $ 122,746 $ 110,184
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 27,698 $ 28,869 $ 27,460
Income taxes 5,649 4,210 3,730
Cash dividend declared and unpaid 1,815 1,558 1,392
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO 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 Co. 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 1997 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 the 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 of income
taxes 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 and Interest Income
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, except interest on some consumer installment
loans which is recognized on the sum-of-the-months digits method, and does not
differ materially from the interest method. Fees and incremental direct costs
associated with loan origination are deferred and amortized as yield adjustments
over the respective loan terms. Generally, the accrual of interest on loans,
including impaired loans, is discontinued when it is determined that the
collection of interest or principal is doubtful, or when a default of interest
or principal has existed for 90 days or more, unless such loan is well secured
and in the process of collection. Cash payments received on nonaccrual loans
generally are applied to principal, and interest income is only recorded once
principal recovery is assured.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT
OF A LOAN ("SFAS 114"), as amended by Statement of Financial Accounting
Standards No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME
RECOGNITION ("SFAS 118"). SFAS 114, as amended, requires that impaired loans be
measured at the present value of expected future cash flows, discounted at the
loan's effective interest rate, at the loan's observable market price, or at the
fair value of the collateral if the loan is collateral dependent. Generally,
impaired loans are also in nonaccrual status. In certain circumstances, however,
the Company may continue to accrue interest on an impaired loan. Cash receipts
on impaired loans are applied to the recorded investment in the loan, including
any accrued interest receivable. The Company does not apply SFAS 114 and SFAS
118 to loans which are part of a large group of smaller-balance homogeneous
loans, such as residential mortgage and consumer loans. Such loans are
collectively evaluated for impairment.
Loans Held for Sale
The Company's operations include a limited amount of mortgage banking. Mortgage
banking activities include the origination of residential mortgage loans for
sale to various investors. Mortgage loans originated and intended for sale in
the secondary market, principally under programs with the Federal Home Loan
Mortgage Corporation (FHLMC) and the Federal National Mortgage Association
(FNMA), are carried at the lower of cost or market value and included in net
loans on the balance sheet. The carrying amount on these loans was less than
0.07% of net loans at December 31, 1997. Mortgage banking revenues, including
origination fees, servicing fees, net gains or losses on sales of mortgages, and
other fee income amount to less than 1% of the Company's total revenue for the
years ended December 31, 1997, 1996, and 1995.
Provision for Loan Losses
The provision for loan losses charged to operating expenses represents 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 in 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
comparable sales. Any reduction to fair value from the fair value recorded at
the time of acquisition is accounted for as a valuation reserve.
Income Taxes
Deferred income tax assets and liabilities result from temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements that will result in taxable or deductible amounts in
future years. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in years in which those temporary
differences are expected to be recovered or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Premises and Equipment
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.
Net Income Per Common Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"), which requires
the computation and disclosure of basic and diluted net income per common share.
Prior period's net income per common share amounts have been restated to reflect
the adoption of SFAS 128. Basic net income per common share is determined by
dividing net income by the weighted average number of shares of common stock
outstanding. Diluted net income per common share is determined by dividing net
income by the weighted average number of shares of common stock outstanding plus
the weighted average number of shares that would be issued upon exercise of
dilutive stock options assuming proceeds are used to repurchase shares pursuant
to the treasury stock method.
The weighted average number of common shares outstanding for both basic and
diluted net income per common share was 3,786,000, 3,842,000, and 3,866,000 for
the years ended December 31, 1997, 1996, and 1995, respectively. Options to
purchase 225,000 shares of common stock at $49.00 per share were granted
September 9, 1997. The options granted are subject to ratification by the
Company's shareholders at the May 12, 1998 annual meeting. The shares granted
were not included in the computation of diluted EPS because the options exercise
price was greater than the 1997 weighted average market price for the common
shares. The options, which expire 10 years after the grant date, were still
outstanding at year end 1997.
2. INVESTMENT SECURITIES
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1997. The summary is divided into available
for sale and held to maturity securities.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1997 (In thousands) Cost Gains Losses Value
- -------------------------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $ 25,773 $ 37 $ 21 $ 25,789
Obligations of U.S. Government agencies 59,033 84 64 59,053
Mortgage-backed securities 30,409 153 19 30,543
Corporate debt 204 20 184
Equity securities 3,507 3,507
----- --- -- -----
Total securities - available for sale $118,926 $ 274 $ 124 $119,076
======== ======== ======== ========
HELD TO MATURITY
U.S. Treasury securities $ 1,000 $ 1 $ 999
Obligations of U.S. Government agencies 16,149 $ 16 63 16,102
Obligations of states and political subdivisions 69,662 982 141 70,503
Mortgage-backed securities 8,875 86 24 8,937
----- -- -- -----
Total securities - held to maturity $ 95,686 $ 1,084 $ 229 $ 96,541
======== ======== ======== ========
</TABLE>
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1996.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996 (In thousands) Cost Gains Losses Value
- -------------------------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $ 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
Corporate debt 849 7 842
Equity securities 2,923 2,923
------ --- -- ------
Total securities - available for sale $109,840 $ 73 $ 622 $109,291
--------
HELD TO MATURITY
U.S. Treasury securities $ 2,000 $ 1 $ 5 $ 1,996
Obligations of U.S. Government agencies 28,581 22 192 28,411
Obligations of states and political subdivisions 66,348 528 356 66,520
Mortgage-backed securities 14,680 145 24 14,801
------ --- -- ------
Total securities - held to maturity $111,609 $ 696 $ 577 $111,728
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1997, by contractual maturity, are shown below. The summary is
divided into available for sale and held to maturity securities. Equity
securities in the available for sale portfolio consist primarily of Federal Home
Loan Bank (FHLB) stock, which has no stated maturity. 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.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Estimated Amortized Estimated
December 31, 1997 (In thousands) Cost Fair Value Cost Fair Value
- -------------------------------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 42,776 $ 42,718 $ 17,458 $ 17,453
Due after one year through five years 42,651 42,717 43,846 44,169
Due after five years through ten years 23,148 23,266 29,703 30,186
Due after ten years 6,844 6,868 4,679 4,733
----- ----- ----- -----
Total $115,419 $115,569 $ 95,686 $ 96,541
======== ======== ======== ========
</TABLE>
Gross gains of $0, $10,000, and $2,000 for 1997, 1996, and 1995, respectively,
were realized on calls of investment securities. There were no losses on these
transactions.
Investment securities with a book value of $129,231,000 and $117,600,000 at
December 31, 1997 and 1996 were pledged to secure public and trust deposits,
repurchase agreements, and for other purposes.
3. LOANS
Major classifications of loans are summarized as follows.
December 31, (In thousands) 1997 1996
- --------------------------- ---- ----
Commercial, financial, and agricultural $ 114,377 $ 120,256
Real estate - construction 26,299 27,098
Real estate - mortgage 334,612 305,229
Installment loans 87,835 85,720
Lease financing 31,759 29,144
------ ------
Total loans 594,882 567,447
Less unearned income (8,942) (9,198)
------ ------
Total loans, net of unearned income $ 585,940 $ 558,249
========= =========
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 $16,245,000 and $13,277,000 at December 31,
1997 and 1996, respectively. An analysis of the activity with respect to these
loans follows.
(In thousands)
- --------------
Balance, December 31, 1996 $13,277
Additions, including loans now meeting
disclosure requirements 11,590
Amounts collected, including loans no longer
meeting disclosure requirements 8,622
-----
Balance, December 31, 1997 $16,245
=======
4. ALLOWANCE FOR LOAN LOSSES
The Company's recorded investment in impaired loans, as defined in SFAS 114, was
$2,813,000 at December 31, 1997 and $2,847,000 at December 31, 1996. Of those
amounts, $2,186,000 and $2,847,000, respectively, represent loans for which an
allowance for loan losses, in the amounts of $895,000 and $922,000, has been
established under SFAS 114. For the years ended December 31, 1997 and 1996, the
recorded investment in impaired loans averaged $3,705,000 and $2,769,000,
respectively. Interest income recognized on impaired loans totaled $226,000,
$151,000, and $113,000 for the years 1997, 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 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, 1997 1996 1995
Regular SFAS 114 Total Regular SFAS 114 Total Regular SFAS 114 Total
(In thousands) Allowance Allowance Allowance Allowance Allowance Allowance Allowance Allowance Allowance
- -------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of year $ 7,819 $ 922 $ 8,741 $ 7,687 $ 785 $ 8,472 $ 8,889 None $ 8,889
Provisions for loan losses 1,713 117 1,830 3,044 1,118 4,162 3,727 3,727
Recoveries 1,138 156 1,294 516 516 740 740
Loans charged off (2,451) (300) (2,751) (3,428) (981) (4,409) (3,666) $(1,218) (4,884)
Initial transfer to SFAS
114 allowance (2,003) (2,003)
Initial transfer from
regular allowance 2,003 2,003
------- ------- ------- ------- ------- ------- ------- ------- -------
Balance, end of year $ 8,219 $ 895 $ 9,114 $ 7,819 $ 922 $ 8,741 $ 7,687 $ 785 $ 8,472
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
5. NONPERFORMING ASSETS
(In thousands) 1997 1996
- -------------- ---- ----
Nonaccrual loans $3,137 $2,938
Loans past due 90 days or more 2,196 1,822
Restructured loans 1,285 1,814
----- -----
Total nonperforming loan balances at December 31, 6,618 6,574
Other real estate owned 29
------ ------
Total nonperforming assets at December 31, $6,647 $6,574
====== ======
Interest income that would have been recognized under original terms on
nonaccrual and restructured loans was $490,000, $445,000, and $731,000 at
December 31, 1997, 1996, and 1995, respectively. The amount of interest
recognized on nonaccrual and restructured loans was $288,000, $189,000, and
$133,000 at December 31, 1997, 1996, and 1995, respectively.
6. PREMISES AND EQUIPMENT
Premises and equipment consist of the following.
December 31, (In thousands) 1997 1996
- --------------------------- ---- ----
Land, buildings, and leasehold improvements $26,609 $23,082
Furniture and equipment 10,591 17,564
------ ------
Total premises and equipment 37,200 40,646
Less accumulated depreciation and amortization 15,986 21,326
------ ------
Net premises and equipment $21,214 $19,320
======= =======
Depreciation and amortization of premises and equipment were $2,054,000,
$1,941,000, and $2,082,000 in 1997, 1996, and 1995, respectively.
7. DEPOSIT LIABILITIES
Time deposits of $100,000 or more at December 31, 1997 and 1996 were $59,526,000
and $53,488,000, respectively.
At December 31, 1997, the scheduled maturities of time deposits were as follows.
(In thousands)
- --------------
1998 $176,516
1999 90,559
2000 34,937
2001 4,810
2002 2,308
2003 and thereafter 5,508
--------
Total $314,638
========
8. OTHER BORROWED FUNDS
Other borrowed funds are comprised primarily of securities sold under agreement
to repurchase with balances of $49,251,000 and $16,594,000 at December 31, 1997
and 1996, respectively. In addition, the Company's subsidiary banks are members
of the Federal Home Loan Bank (FHLB) and, accordingly, are eligible to borrow
from the FHLB. The Company's subsidiary banks pledge certain first mortgage
loans as collateral for these advances. The outstanding balances for such
borrowings were $2,558,000 and $2,777,000 at December 31, 1997 and 1996,
respectively. Information concerning other borrowed funds is summarized as
follows.
<TABLE>
<CAPTION>
1997 1996
Maximum Maximum
December 31, (In thousands) 1997 1996 Average Month End Average Month End
- --------------------------- ---- ---- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHORT TERM
Securities sold under agreement to repurchase $49,251 $16,594 $27,975 $49,251 $25,706 $59,452
Other 1,351 142 1,351
------- ------- ------- ------- ------- -------
Total Short Term $50,602 $16,594 $28,117 $50,602 $25,706 $59,452
======= ======= ======= ======= ======= =======
LONG TERM
FHLB advances 2,558 2,777
Other 495 794
--- ---
Total long term $ 3,053 $ 3,571
======= =======
</TABLE>
The weighted average interest rate on short term debt during 1997 and 1996 was
4.75% and 5.11%, respectively. The weighted average interest rate on FHLB debt
was 7.75% during 1997 and 1996. The weighted average interest rate on other long
term debt was 4.42% during 1997 and 1996.
Maturities of long term borrowings outstanding at December 31, 1997 are as
follows.
(In thousands)
- --------------
1998 $ 481
1999 470
2000 228
2001 228
2002 228
Thereafter 1,418
-----
Total $3,053
======
9. INCOME TAXES
The components of income tax expense are as follows.
<TABLE>
<CAPTION>
December 31, (In thousands) 1997 1996 1995
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Currently payable $ 5,189 $ 4,666 $ 3,640
Deferred income taxes 633 512 732
--- --- ---
Total applicable to operations 5,822 5,178 4,372
Charged (credited) to components of shareholders equity:
Net unrealized securities gains (losses) 238 245 (161)
--- --- ----
Total income taxes $ 6,060 $ 5,423 $ 4,211
======= ======= =======
</TABLE>
An analysis of the difference between the effective income tax rates and the
statutory federal income tax rate follows.
<TABLE>
<CAPTION>
December 31, (In thousands) 1997 1996 1995
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Changes from statutory rates resulting from:
Tax exempt interest (6.7) (6.8) (7.4)
Nondeductible interest to carry municipal obligations .8 .8 .9
Amortization of intangibles .9 1.0 1.2
Other, net (.8) (1.0) (.1)
--- ---- ---
Effective tax rate 29.2% 29.0% 29.6%
==== ==== ====
</TABLE>
The tax effects of the significant temporary differences which comprise deferred
tax assets and liabilities at December 31, 1997 and 1996 follow.
December 31, (In thousands) 1997 1996
- --------------------------- ---- ----
ASSETS
Loan loss reserve $ 3,190 $ 3,059
Deferred directors' fees 184 168
Postretirement benefit obligation 435 366
Investment securities 187
Self-funded insurance 34 196
Other 95
----- -----
Total deferred tax assets 3,843 4,071
LIABILITIES
Depreciation 1,596 1,691
Investment securities 139
Deferred loan fees 768 632
Lease financing operations 1,437 1,045
Other 161 90
----- -----
Total deferred tax liabilities 4,101 3,458
----- -----
Net deferred tax asset (liability) $ (258) $ 613
======= =======
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences at December 31, 1997.
10. 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 $0,
$102,000, and $0, respectively for the years ended December 31, 1997, 1996, and
1995. No stock was contributed to the plan for the years ended December 31,
1997, 1996, and 1995, 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 plan expense for 1997, 1996, and 1995 was $847,000,
$897,000, and $857,000, respectively.
11. COMMON STOCK OPTIONS
In 1997, the Board of Directors approved a nonqualified stock option plan which
provides for granting of stock options to key employees and officers of the
Company. The plan is subject to ratification by the Company's shareholders at
the next annual shareholders meeting to be held May 12, 1998. The Company
applies Accounting Principals Board Opinion No. 25 and related interpretations
in accounting for its plan. Accordingly, no compensation expense has been
recognized for the stock option plan. Had compensation cost for the Company's
stock options granted in 1997 been determined under the fair value approach
described in Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, the Company's net income and income per share would
have been reduced to the pro forma amounts indicated below.
December 31, 1997
(In thousands, except per share data) As reported Pro Forma
- ------------------------------------- ----------- ---------
Net income $ 14,103 $ 14,048
Basic income per share 3.73 3.71
Diluted income per share 3.73 3.71
The plan provides for the granting of options to purchase up to 225,000 shares
of the Company's common stock at a price equal to 100% of the fair market value
of the Company's common stock on the date the option is granted. The term of the
options expire after ten years from the date on which the options are granted.
Options granted under the plan vest ratably over various time periods ranging
from four to seven years. All options granted must be held for a minimum of one
year before they can be exercised.
The fair value of the option grants are estimated as of the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997: dividend yield of 5.31%; expected
volatility of 19.3%; risk free interest rate of 5.75%; and expected life of
seven years.
A summary of the status of the Company's stock option plan as of December 31,
1997 is presented below.
Weighted Weighted
Average Average
Price Per Remaining
Shares Share Life
------ ----- ----
Outstanding at January 1, 1997 0 0 0
Granted 225,000 $ 49.00 6.7 years
Expired 0 0 0
Exercised 0 0 0
------- ------- ---------
Outstanding at December 31, 1997 225,000 $ 49.00 6.7 years
======= ======= =========
Exercisable at December 31, 1997 0 0 0
The weighted average fair value of each option granted in 1997 was $6.87.
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
$113,000, $127,000, and $131,000, respectively, for the years ended December 31,
1997, 1996, and 1995. The plan is unfunded.
The following table sets forth the plan's status reconciled with the amount
shown in the Company's consolidated balance sheets at December 31, 1997 and
1996.
(In thousands) 1997 1996
- -------------- ---- ----
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
Retirees and dependents $ 2,471 $ 2,577
Fully eligible active plan participants 458 675
Other active plan participants 48 698
-- ---
Total accumulated postretirement benefit obligation 2,977 3,950
Unrecognized net gain (loss) 277 (866)
Unamortized transition obligation (1,522) (1,623)
Unrecognized prior service cost (467) (509)
---- ----
Accrued postretirement benefit cost $ 1,265 $ 952
======= =======
The components of the net periodic postretirement benefit cost at December 31,
1997 and 1996 are as follows.
(In thousands) 1997 1996
- -------------- ---- ----
Service cost $ 9 $ 24
Interest on accumulated benefit obligation 250 278
Amortization of transition obligation and other 145 192
--- ---
Total $404 $494
==== ====
Major assumptions:
Discount rate 7.0% 7.5%
For measurement purposes, a 9.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed. The rate was assumed to decrease
gradually to 5% 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 accumulated benefit
obligation would be $3,312,000.
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, 1997 were $89,147,000. 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, premises
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 issuing letters of credit is essentially the same as
that received when extending credit to customers. The Company had approximately
$6,902,000 in irrevocable letters of credit outstanding at December 31, 1997.
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 certain 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,
results of operations or cash flows, although resolution in any year or quarter
could be material for that period.
17. REGULATORY MATTERS
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, 1997, combined retained earnings of the subsidiary
banks were approximately $37,321,000 of which $7,241,000 is available for the
payment of dividends in 1998 without obtaining prior approval from bank
regulatory agencies.
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 $11,937,000 at December 31, 1997 and
$9,990,000 at December 31, 1996.
The Company's banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the banks
must meet specific capital guidelines that involve quantitative measures of the
banks assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The banks capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the banks to maintain minimum amounts and ratios (set forth in the
tables below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Each of the Company's subsidiary banks meet all capital adequacy
requirements to which they are subject as of December 31, 1997.
As of December 31, 1997, the most recent notification from the FDIC categorized
the banks as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the tables. There are no conditions or events since that
notification that management believes have changed the institution's category.
The banks actual capital amounts and ratios are also presented in the tables.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31, 1997 (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $115,102 18.73% $ 24,587 4.00% $ 36,880 6.00%
Farmers Bank & Capital Trust Co. 34,508 12.46 11,060 4.00 16,590 6.00
Farmers Bank and Trust Co. 10,726 13.54 3,156 4.00 4,733 6.00
Lawrenceburg National Bank 8,380 12.98 2,577 4.00 3,865 6.00
First Citizens Bank 9,513 13.00 2,923 4.00 4,384 6.00
United Bank & Trust Co. 8,959 13.30 2,689 4.00 4,033 6.00
Kentucky Banking Centers, Inc. 6,688 11.67 2,289 4.00 3,434 6.00
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $122,803 19.98% $ 49,174 8.00% $ 61,467 10.00%
Farmers Bank & Capital Trust Co. 37,971 13.71 22,120 8.00 27,650 10.00
Farmers Bank and Trust Co. 11,716 14.79 6,311 8.00 7,889 10.00
Lawrenceburg National Bank 9,187 14.23 5,154 8.00 6,442 10.00
First Citizens Bank 10,428 14.25 5,846 8.00 7,307 10.00
United Bank & Trust Co. 9,801 14.55 5,378 8.00 6,722 10.00
Kentucky Banking Centers, Inc. 7,405 12.92 4,578 8.00 5,723 10.00
TIER 1 CAPITAL (TO AVERAGE ASSETS)
Consolidated $115,102 12.73% $ 36,163 4.00% $ 45,204 5.00%
Farmers Bank & Capital Trust Co. 34,508 8.52 16,201 4.00 20,252 5.00
Farmers Bank and Trust Co. 10,726 9.01 4,759 4.00 5,949 5.00
Lawrenceburg National Bank 8,380 8.89 3,770 4.00 4,713 5.00
First Citizens Bank 9,513 8.31 4,581 4.00 5,726 5.00
United Bank & Trust Co. 8,959 8.94 4,009 4.00 5,011 5.00
Kentucky Banking Centers, Inc. 6,688 8.84 3,027 4.00 3,783 5.00
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31, 1996 (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $107,603 18.35% $ 23,459 4.00% $ 35,189 6.00%
Farmers Bank & Capital Trust Co. 36,095 13.82 10,428 4.00 15,642 6.00
Farmers Bank and Trust Co. 10,060 12.92 3,104 4.00 4,655 6.00
Lawrenceburg National Bank 8,703 13.30 2,612 4.00 3,918 6.00
First Citizens Bank 10,332 14.57 2,831 4.00 4,246 6.00
United Bank & Trust Co. 8,561 13.65 2,504 4.00 3,756 6.00
Kentucky Banking Centers, Inc. 6,561 12.55 2,088 4.00 3,132 6.00
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $114,951 19.60% $ 46,918 8.00% $ 58,648 10.00%
Farmers Bank & Capital Trust Co. 39,361 15.07 20,855 8.00 26,069 10.00
Farmers Bank and Trust Co. 11,034 14.17 6,207 8.00 7,759 10.00
Lawrenceburg National Bank 9,521 14.55 5,224 8.00 6,530 10.00
First Citizens Bank 11,218 15.82 5,662 8.00 7,077 10.00
United Bank & Trust Co. 9,345 14.90 5,008 8.00 6,261 10.00
Kentucky Banking Centers, Inc. 7,214 13.80 4,176 8.00 5,220 10.00
TIER 1 CAPITAL (TO AVERAGE ASSETS)
Consolidated $107,603 11.91% $ 36,153 4.00% $ 45,191 5.00%
Farmers Bank & Capital Trust Co. 36,095 8.69 16,615 4.00 20,769 5.00
Farmers Bank and Trust Co. 10,060 8.69 4,629 4.00 5,786 5.00
Lawrenceburg National Bank 8,703 8.87 3,926 4.00 4,907 5.00
First Citizens Bank 10,332 9.16 4,513 4.00 5,642 5.00
United Bank & Trust Co. 8,561 8.79 3,897 4.00 4,871 5.00
Kentucky Banking Centers, Inc. 6,561 9.03 2,906 4.00 3,633 5.00
</TABLE>
18. STOCK SPLIT
Subsequent to December 31, 1997 the Board of Directors of the Company approved a
two-for-one stock split of its common stock in order to make its shares more
accessible to potential buyers. This should result in a wider distribution and
improved marketability for the Company's shares. In order to effect the split,
the shareholders of the Company will be asked to approve an increase in the
number of authorized shares at their next annual meeting to be held May 12,
1998. The stock split is effective on July 1, 1998 for holders of record on June
1, 1998.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS ("SFAS
107"). This Statement requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet for which
it is practicable to estimate that value. The estimated fair value amounts have
been determined by the Company using available market information and present
value or other valuation techniques. These derived fair values are subjective in
nature, involve uncertainties and matters of significant judgement and,
therefore, cannot be determined with precision. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from the disclosure
requirements. Accordingly, the aggregate fair value amounts presented are not
intended to represent the underlying value of the Company.
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, fair values are based on quoted market prices
or dealer quotes. For other securities, 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
The fair value of loans is estimated by discounting the future cash flows using
current discount rates at which similar loans would be made to borrowers with
similar credit ratings and for the same 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 fair value
of fixed maturity certificates of deposit is estimated by discounting the future
cash flows using the 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.
December 31, 1997 1996
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- -------------- ------ ----- ------ -----
ASSETS
Cash and cash equivalents $186,740 $186,740 $122,746 $122,746
Investments securities:
Available for sale 119,076 119,076 109,291 109,291
Held to maturity 95,686 96,541 111,609 111,728
Loans, net 576,826 575,306 549,508 543,252
LIABILITIES
Deposits 834,976 835,264 786,310 787,793
Other borrowed funds 53,655 53,740 20,165 20,419
20. QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Unaudited (In thousands, except per share data)
Quarters Ended 1997 March 31 June 30 Sept. 30 Dec. 31
- ------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $16,563 $16,713 $16,952 $17,132
Interest expense 6,868 6,719 6,875 6,988
----- ----- ----- -----
Net interest income 9,695 9,994 10,077 10,144
Provision for loan losses 568 518 407 337
--- --- --- ---
Net interest income after provision for loan losses 9,127 9,476 9,670 9,807
Other income 3,262 2,995 3,086 3,171
Other expense 7,633 7,165 7,795 8,076
----- ----- ----- -----
Income before income taxes 4,756 5,306 4,961 4,902
Income tax expense 1,365 1,521 1,499 1,437
----- ----- ----- -----
Net income $ 3,391 $ 3,785 $ 3,462 $ 3,465
======= ======= ======= =======
Net income per common share - basic $ .89 $ 1.00 $ .92 $ .92
Net income per common share - diluted .89 1.00 .92 .91
Weighted average shares outstanding - basic 3,795 3,786 3,781 3,781
Weighted average shares outstanding - diluted 3,795 3,786 3,781 3,814
</TABLE>
<TABLE>
<CAPTION>
Unaudited (In thousands, except per share data)
Quarters Ended 1996 March 31 June 30 Sept. 30 Dec. 31
- ------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
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 expense 968 1,995 1,297 918
--- ----- ----- ---
Net income $ 2,455 $ 4,189 $ 3,137 $ 2,875
======= ======= ======= =======
Net income per common share - basic and diluted $ 0.64 $ 1.08 $ 0.82 $ 0.76
Weighted average shares outstanding - basic and diluted 3,866 3,866 3,836 3,798
</TABLE>
21. PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, (In thousands) 1997 1996
- --------------------------- ---- ----
ASSETS
Cash on deposit with subsidiaries $ 37,720 $ 28,197
Investment in subsidiaries 80,822 82,474
Other assets 1,714 1,940
----- -----
Total assets $ 120,256 $ 112,611
========= =========
LIABILITIES
Dividends payable $ 1,815 $ 1,558
Other liabilities 1,397 1,457
----- -----
Total liabilities 3,212 3,015
SHAREHOLDERS' EQUITY
Common stock 945 949
Capital surplus 8,894 8,931
Retained earnings 107,105 100,078
Unrealized gain (loss) on securities
available for sale, net of tax 100 (362)
--- ----
Total shareholders' equity 117,044 109,596
------- -------
Total liabilities and shareholders' equity $ 120,256 $ 112,611
========= =========
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
December 31, (In thousands) 1997 1996 1995
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 16,922 $ 12,847 $ 7,756
Interest income 120 98 101
Other income 1,055 689 724
----- --- ---
Total income 18,097 13,634 8,581
EXPENSE
Other expense 2,112 2,149 1,556
----- ----- -----
Total expense 2,112 2,149 1,556
----- ----- -----
Income before income tax benefit and equity in undistributed
income of subsidiaries 15,985 11,485 7,025
Income tax benefit 232 509 288
--- --- ---
Income before equity in undistributed income of subsidiaries 16,217 11,994 7,313
Equity in undistributed income of subsidiaries (2,114) 662 3,076
------ --- -----
Net income $ 14,103 $ 12,656 $ 10,389
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
December 31, (In thousands) 1997 1996 1995
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,103 $ 12,656 $ 10,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries 2,114 (662) (3,076)
Change in other assets and liabilities, net 166 (107) 419
--- ---- ---
Net cash provided by operating activities 16,383 11,887 7,732
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends (6,216) (5,557) (5,103)
Purchase of common stock (644) (2,731)
---- ------ ------
Net cash used in financing activities (6,860) (8,288) (5,103)
------ ------ ------
Net change in cash and cash equivalents 9,523 3,599 2,629
Cash and cash equivalents at beginning of year 28,197 24,598 21,969
------ ------ ------
Cash and cash equivalents at end of year $ 37,720 $ 28,197 $ 24,598
======== ======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for income taxes $ 5,649 $ 4,210 $ 3,730
Cash dividend declared and unpaid 1,815 1,558 1,392
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
KPMG Peat Marwick LLP replaced Coopers & Lybrand L.L.P. (the "Former
Accountant") as principal accountants for the Registrant on February 28, 1997.
The change in the Registrant's independent public accountants was the result of
a formal proposal process conducted by an appointed committee involving several
accounting firms. The decision to change accountants was approved by the
Registrant's Board of Directors.
Neither KPMG Peat Marwick LLP's report on the consolidated financial statements
for 1997 nor the Former Accountant's report on the consolidated financial
statements for 1996 contained an adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the two most recent fiscal years 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.
None of the following events has occurred within the Registrant's two most
recent fiscal years:
(A) the Former Accountant did not advise the Registrant that the internal
controls necessary for the Registrant to develop reliable financial
statements do not exist;
(B) the Former Accountant did not advise the Registrant that information had
come to the Former 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 did not advise the Registrant of the need to
expand significantly the scope of its audit, or that information had come
to the Former Accountant's attention that if further investigated could (i)
materially impacted 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 Former Accountant did not so expand
the scope of its audit or conduct such further investigations; or
(D) (1) the Former Accountant did not advise the Registrant that information
had come to the Former Accountant's attention that it concluded materially
impacted 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 Former Accountant's satisfaction, would prevent it from rendering an
unqualified audit report on those financial statements), and (2) due to the
Former Accountant's dismissal, or for any other reason, the issue had not
been resolved to the Former Accountant's satisfaction prior to its
dismissal.
During the two most recent fiscal years 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.
<PAGE>
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 56 Director 1, President 34*
and CEO
James H. Childers 55 Executive Vice President, 28*
Secretary, General Counsel,
Director 2
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 12, 1998 which will be filed with the
Commission in March 1998, pursuant to Regulation 14A.
* Includes years of service with the Registrant and Farmers Bank & Capital
Trust Co.
1 Also a director of Farmers Bank, Ky Banking Centers, 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 12, 1998 which will be
filed with the Commission in March 1998, pursuant to Regulation 14A.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS AND EXHIBITS REFERENCE (PAGE)
1 & 2 Financial Statements and Schedules
Independent Auditors' Reports 29-30
Consolidated Balance Sheets at
December 31, 1997 and 1996 31
Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995 32
Consolidated Statements of Changes in
Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995 33
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 34
Notes to Consolidated Financial Statements 35-53
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:
3(ii). By-laws
10(iii). The Registrant's Stock Option Plan, subject to
shareholder ratification, is included in Appendix A of the
Registrant's definitive proxy statement to be filed with the
Commission in March, 1998 and is hereby incorporated by
reference.
16. Letter re change in certifying accountant
21. Subsidiaries of the Registrant
27. Financial Data Schedule (for SEC only)
(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, 1997.
(c) EXHIBITS
See Index of Exhibits set forth on page 58.
(d) SEPARATE FINANCIAL STATEMENTS AND SCHEDULES
None
<PAGE>
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: 3/23/98
--------------
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 3/23/98
Charles S. Boyd and Director (principal executive
officer of the Registrant)
Chairman
John P. Stewart
/s/ James E. Bondurant Director 3/20/98
James E. Bondurant
/s/ J. Barry Banker Director 3/27/98
J. Barry Banker
Director
Frank W. Sower, Jr.
Director
Lloyd C. Hillard
/s/ J.H. Childers Director 3/25/98
James H. Childers
/s/ G. Anthony Busseni Director 3/27/98
G. Anthony Busseni
/s/ Harold G. Mays Director 3/25/98
Harold G. Mays
/s/ E. Bruce Dungan Director 3/27/98
E. Bruce Dungan
/s/ W. Benjamin Crain Director 3/30/98
Benjamin Crain
Director
Cecil D. Bell, Jr.
/s/ C. Douglas Carpenter Vice President and CFO 3/20/98
C. Douglas Carpenter (principal financial and
accounting officer)
<PAGE>
INDEX OF EXHIBITS
Page
3(ii). By-laws 59
10(iii). The Registrant's Stock Option Plan, subject
to shareholder ratification, is included in
Appendix A of the Registrant's definitive proxy
statement to be filed with the Commission in
March, 1998 and is hereby incorporated by reference.
16. Letter re change in certifying accountant 70
21. Subsidiaries of the Registrant 71
27. Financial Data Schedule (for SEC use only)
<PAGE>
EXHIBIT 3(ii)
BY-LAWS
AMENDED AND RESTATED
BY-LAWS
OF
FARMERS CAPITAL BANK CORPORATION
ARTICLE I
OFFICES
1.1 PRINCIPAL OFFICE. The principal office of the Corporation in the
Commonwealth of Kentucky shall be located at 201 West Main Street, Frankfort,
Kentucky 40601. The Corporation may have such other offices, either within or
without the Commonwealth of Kentucky, as the business of the Corporation may
require from time to time.
1.2 REGISTERED OFFICE. The registered office of the Corporation may be,
but need not be, identical with its principal office in the Commonwealth of
Kentucky. The address of the registered office may be changed from time to time
by the Board of Directors.
ARTICLE II
SHAREHOLDERS
2.1 ANNUAL MEETINGS. The annual meeting of the shareholders shall be
held at the principal office of the Corporation on the 2nd Tuesday in May of
each year, at such time as the Chief Executive Officer may designate. The
purpose of such meetings shall be the election of directors in accordance with
Article VI of the Articles of Incorporation and such other business as may
properly come before it. If the election of directors shall not be held on the
day designated for an annual meeting, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as may be practicable.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the Corporation's Board of Directors, or by the holders of not less
than one-third (33-1/3%) of all the outstanding shares of the Corporation
entitled to vote at such meeting, who have demanded such special meeting in
writing delivered to the Corporation's Secretary.
2.3 PLACE OF SPECIAL MEETINGS. The Board of Directors may designate any
place within or without the Commonwealth of Kentucky as the place for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders may include a designation of any place, either within or
without the Commonwealth of Kentucky, as the place for the holding of such
meeting. If no designation is properly made, or if a special meeting be
otherwise called, the place of meeting shall be at the registered office of the
Corporation in the Commonwealth of Kentucky.
2.4 NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written or printed notice
stating the place, day and hour of the meeting of shareholders and, in case of a
special meeting of shareholders, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) days nor more than sixty
(60) days before the date of the meeting, either personally or by mail, by or at
the direction of the President or the Secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail in a sealed envelope addressed to the shareholder at
his or her address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid.
2.5 MEETINGS BY CONSENT OF ALL SHAREHOLDERS. If all the shareholders
shall meet at any time and place, either within or without the Commonwealth of
Kentucky, and no shareholder objects at such meeting to holding the meeting or
transacting business therein, such meeting shall be valid without call or
notice, and at such meeting, any corporate action may be taken.
2.6 WAIVER AND CONSENT TO MEETINGS OF LESS THAN ALL SHAREHOLDERS. If a
shareholder meeting shall occur without all shareholders in attendance, a prior
or subsequent written waiver of notice or consent to the holding of such meeting
by the absent shareholders shall be equivalent to the call and giving of any
requisite notice, and such meeting shall be valid without call or notice, and
corporate action may be taken at such meeting.
2.7 CLOSING TRANSFER BOOKS AND FIXING OF A RECORD DATE. The Board of
Directors of the Corporation may close its stock transfer books for a period not
exceeding seventy (70) days immediately prior to the date of any meeting of
shareholders, or the date for the payment of any dividend or for the allotment
of rights, or to the date when any exchange or reclassification of shares shall
be effective, as the record date for the determination of shareholders entitled
to notice of, or to vote at, such meeting, or shareholders entitled to receive
payment of any such dividend or to receive any such allotment of rights, or to
exercise any rights in respect of any exchange or reclassification of shares;
and the shareholders of record on such record date shall be the shareholders
entitled to notice of, and to vote at, such meeting, or to receive payment of
such dividend or to receive such allotment of rights, or to exercise such
rights, in the event of an exchange or reclassification of shares, as the case
may be. If the transfer books are not closed and no record date is fixed by the
Board of Directors, the day before the date on which notice of the meeting is
mailed, or the date on which the resolution of the Board of Directors declaring
such dividend is adopted or such other action is taken, as the case may be,
shall be deemed to be the record date for the determination of the shareholders
of the Corporation and the number of shares owned by them for all of the
purposes set forth in the immediately preceding sentence. When a determination
of shareholders has been made as provided in this Section, such determination
shall apply to any adjournment thereof.
2.8 VOTING RECORD. The officer or agent having charge of the transfer
book for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order by
voting group, with the address of, and the number of shares held by, each
shareholder. Such list shall be produced and be available for inspection at the
corporation's principal office beginning five (5) business days before the
meeting for which the list was prepared. Such list shall also be available at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole course of the meeting.
2.9 QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote on a particular matter, or a majority of the shares entitled to
vote as a separate voting group, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders. If a quorum of shareholders
is present, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater number of voting by classes is
required by the Kentucky Business Corporation Act or by the Articles of
Incorporation or these By-Laws. The shareholders present at a duly organized
meeting can continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
2.10 PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy. A proxy, unless coupled with an interest and expressly made
irrevocable, may be revoked in writing at any time. The effective time of such
revocation shall be the time the Secretary of the Corporation receives the
written notice of revocation.
2.11 VOTING OF SHARES. Subject to the provisions of Section 2.13
hereof, each outstanding share of common stock authorized by the Corporation's
Articles of Incorporation to have voting power shall be entitled to one vote
upon each matter submitted to a vote at a meeting of shareholders. The voting
rights, if any, of classes of shares other than voting common stock shall be as
set forth in the Corporation's Articles of Incorporation or by appropriate legal
action of the Board of Directors.
2.12 VOTING OF SHARES BY CERTAIN HOLDERS.
(a) Shares standing in the name of another corporation may be
voted by that corporation's president or by proxy appointed by him or her or by
such other officer, agent or proxy as the by-laws of such other corporation may
prescribe, or, in the absence of such provision, as the board of directors of
such other corporation may determine.
(b) Shares held by an administrator, executor, guardian or
conservator may be voted by him or her, either in person or by proxy, without a
transfer of such shares into his or her name. Shares standing in the name of a
trustee may be voted by him or her, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him or her without a transfer of such
shares into his or her name.
(c) Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his or her name if
authority so to do be contained in an appropriate order of the court by which
such receiver was appointed.
(d) Where shares are held jointly by two or more co-owners or
fiduciaries, if only one such fiduciary votes, his or her act shall be presumed
by the Corporation to be the vote of such co-owners or fiduciaries, if such
fiduciary appears to be voting on behalf of all the co-owners or fiduciaries.
Where shares are held jointly by three (3) or more fiduciaries, the will of the
majority of such fiduciaries shall control the manner of voting or the giving of
a proxy unless the instrument or order appointing the fiduciaries otherwise
directs. Where, in any case, fiduciaries are equally divided upon the manner of
voting shares jointly held by them, any court of competent jurisdiction may,
upon petition filed by any of the fiduciaries, or by any beneficiary, appoint an
additional person to act with the fiduciaries in determining the manner in which
the shares shall be voted upon the particular questions as to which the
fiduciaries are divided.
(e) A shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter, the pledgee shall be entitled to vote the shares so
transferred.
(f) The Secretary of the Corporation may demand written proof
that the person asserting the right to vote shares pursuant to this Section 2.12
holds the position he or she claims to hold and has been properly authorized to
vote the shares he or she represents. Such proof, if demanded, shall be
presented prior to the voting of such shares by such person.
2.13 CUMULATIVE VOTING. At each election for directors, each
shareholder entitled to vote at such election shall have the right to cast, in
person or by proxy, as many votes in the aggregate as he or she shall be
entitled to vote under the Corporation's Articles of Incorporation, multiplied
by the number of directors to be elected at such election; and each shareholder
may cast the whole number of votes for one candidate or distributes such votes
among two or more candidates. Directors shall not be elected in any other
manner.
2.14 ACTION BY WRITTEN CONSENT. Any action required to be taken, or
which may be taken, at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.
ARTICLE III
DIRECTORS
3.1 GENERAL POWERS. The business and affairs of the Corporation shall
be managed by its Board of Directors.
3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the
Corporation shall be twelve (12), who shall be divided into three (3) classes,
and be elected and hold office as provided in Article VI of the Articles of
Incorporation. Each director shall hold office for the term for which he or she
is elected or until his or her successor shall have been elected and qualified,
whichever period is longer. The Board of Directors shall have authority to amend
the By-Laws to prescribe other qualifications for directors.
3.3 REMOVAL AND RESIGNATIONS. At a meeting of shareholders called
expressly for that purpose, any director may be removed, with cause, by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. At a meeting of shareholders called expressly for that purpose,
any director may be removed, without cause, by a vote of the holders of eighty
(80%) percent of the shares then entitled to vote at an election of directors.
Any member of the Board of Directors may resign from the Board of Directors at
any time by giving written notice to the President or Secretary of the
Corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.4 REGULAR MEETINGS. A regular annual meeting of the Board of
Directors shall be held immediately after the annual meeting of shareholders.
The Board of Directors may provide, by resolution, the time and place, either
within or without the Commonwealth of Kentucky, for the holding of additional
regular meetings without other notice than such resolution.
3.5 SPECIAL MEETINGS. Special Meetings of the Board of Directors may be
called by or at the request of the President or, if the Corporation has more
than one director, any two directors. All special meetings of the Board of
Directors shall be held at the principal office of the Corporation or such other
place as may be specified in the notice of the meeting.
3.6 MANNER OF CONDUCTING BOARD MEETINGS. The Board of Directors of the
Corporation may permit any or all directors to participate in a regular or
special meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means
shall be deemed to be present in person at the meeting.
At the regular quarterly meeting of the Board of Directors of the
Farmers Capital Bank Corporation held on January 26, 1998, the following
Resolution was duly adopted:
BE IT RESOLVED, that Article 3.6 of the By-Laws of the Farmers Capital
Bank Corporation is hereby amended to add the following sentence: "Directors may
also take action by the means described in KRS 271B.8-210.
/s/ James H. Childers
JAMES H. CHILDERS, SECRETARY
3.7 NOTICE. Notice of the date, time and place of any special meeting
shall be given at least two (2) days prior thereto by written notice delivered
personally or mailed to each director at his or her business address, or by
telegram. Any director may waive notice of any meeting. The attendance of a
director at, or participation in, any meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting (at the beginning of the meeting) to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
3.8 QUORUM. A majority of the number of directors fixed by, or
determined in accordance with, Section 3.2 hereof shall constitute a quorum for
the transaction of business at any meeting of the Board of Directors, provided
that, if less than a majority of the directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
3.9 VOTING. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless otherwise required by the Articles of Incorporation.
A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors where action is taken shall be deemed to
have assented to the action taken unless:
(a) He or she objects at the beginning of the meeting (or promptly upon his
or her arrival) to holding it or transacting business at the meeting;
(b) His or her dissent or abstention from the action taken is entered in
the minutes of the meeting; or
(c) He or she delivers written notice of his or her dissent or abstention
for the presiding officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting. The right of dissent
or abstention shall not be available to a director who votes in favor of the
action.
3.10 VACANCIES. Any vacancy occurring in the Board of Directors may be
filled by the shareholders or by the Board of Directors. If the directors
remaining in office constitute fewer than a quorum of the Board, they may fill
the vacancy by the affirmative vote of a majority of all directors remaining in
office. If the vacancy was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group shall be entitled
to vote to fill the vacancy if it is filled by the shareholders. A vacancy that
will occur at a specific later date may be filled before the vacancy occurs, but
the new director may not take office until the vacancy occurs.
A director elected to fill a vacancy shall be elected for the
unexpired term of his or her predecessor in office. Any directorship to be
filled by reason of an increase in the number of directors may be filled by the
Board of Directors for a term of office continuing only until the next election
of directors by the shareholders.
3.11 COMPENSATION. By resolution of the Board of Directors, each
director may be paid his or her expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a stated stipend as director or a
fixed sum for attendance at each meeting of the Board of Directors, or both. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
3.12 ACTION BY WRITTEN CONSENT. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
3.13 CHAIRMAN AND VICE-CHAIRMAN OF THE BOARD. The Board of Directors
may appoint one of its members Chairman of the Board of Directors. The Board of
Directors may also appoint one of its members as Vice-Chairman of the Board of
Directors, and such individual shall serve in the absence of the Chairman and
perform such additional duties as may be assigned to him or her by the Board of
Directors.
ARTICLE IV
OFFICERS
4.1 OFFICERS. The officers of the Corporation shall be a President, one
or more Vice-Presidents a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. Such other officers and assistant officers as
may be deemed necessary may be elected or appointed by the Board of Directors.
Any two or more offices may be held by the same person, except the offices of
President and Secretary may not be held by the same person.
4.2 ELECTION AND TERM OF OFFICE. The officers of the Corporation shall
be elected by the Board of Directors at the first and, thereafter at each,
annual meeting of the Board of Directors. If the election of officers shall not
be held at any such meeting, such election shall be held as soon thereafter as
is convenient. Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Each officer shall hold office until his or
her successor shall have been duly elected and shall have qualified or until his
or her death or until he or she shall resign or shall have been removed in the
manner hereinafter provided.
4.3 REMOVAL AND RESIGNATIONS. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors, with or
without cause, whenever, in its judgment, the best interests of the Corporation
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights. Any officer of the
Corporation may resign at any time by giving written notice to the President or
Secretary of the Corporation, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
4.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Directors
for the unexpired portion of the term.
4.5 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board shall
preside at all meetings of the shareholders and Board of Directors.
4.6 PRESIDENT. The President shall be the Chief Executive Officer of
the Corporation. If no chairman has been appointed or, in the absence of the
chairman, he or she shall preside at all meetings of the shareholders and of the
Board of Directors. He or she may sign, with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these By-Laws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and, in general, shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time. Unless otherwise ordered by the Board of Directors,
the President shall have full power and authority on behalf of the Corporation
to attend, act and vote at any meetings of shareholders of any corporation in
which the Corporation may hold stock, and at any such meeting, shall hold and
may exercise all rights incident to the ownership of such stock which the
Corporation, as owner, might have had and exercised if present. The Board of
Directors may confer like powers on any other person or persons.
4.7 VICE PRESIDENTS. In the absence of the President, or in the event
of his or her inability or refusal to act, the Vice President (or, in the event
there is more than one Vice President, the Vice President in order designated at
the time of this election, or in the absence of any designation, then, in the
order of their election), shall perform the duties of the President and when so
acting, shall have all powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or an Assistant
Secretary, certificates for shares of the Corporation whose issuance has been
authorized by the Board of Directors. The Vice President shall also perform such
other duties as may from time to time be assigned to him or her by the President
or by the Board of Directors.
4.8 TREASURER. The Treasurer shall have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies and other depositories as shall be selected in accordance
with the provisions of ARTICLE V of these By-Laws; and, in general, perform all
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him or her by the Chairman of the Board, the
President or the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his or her duties in
such sum and with such surety or sureties as the Board of Directors shall
determine.
4.9 SECRETARY. The Secretary shall (a) keep the minutes of the
shareholders' meetings and of the Board of Directors' meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal, if any, of the Corporation;
(d) keep a register of the Post Office address of each shareholder; (e) sign
with the President or Vice President certificates for shares of stock of the
Corporation; (f) have general charge of the stock transfer books of the
Corporation; and, in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Chairman of the Board, the President or by the Board of Directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS
AND DEPOSITS
5.1 CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract and execute and deliver
any instruments in the name of and on behalf of the Corporation.
Such authority may be general or confined to specific instances.
5.2 LOANS. No loans shall be contracted on behalf of the Corporation, and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
5.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, or agent or agents,
of the Corporation and in such manner as shall, from time to time, be determined
by resolution of the Board of Directors.
5.4 DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited, from time to time, to the credit of the Corporation in such banks,
trust companies and other depositories as the Board of Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND
THEIR TRANSFER
6.1 CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as may be determined by the Board of Directors
and by the laws of the Commonwealth of Kentucky. Such certificates shall be
signed (either manually or in facsimile) by the President or a Vice President
and by the Secretary or an Assistant Secretary, and may bear the seal of the
Corporation, or a facsimile thereof. All certificates for shares shall be
consecutively numbered. The name of the person owning the shares represented
thereby, with the number of shares and date of issue, shall be entered on the
books of the Corporation. All certificates surrendered to the Corporation for
transfer shall be cancelled and no new certificates shall be issued until the
former certificates for a like number of shares shall have been surrendered and
cancelled, except that, in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Board of Directors may prescribe.
6.2 TRANSFER OF SHARES. Transfer of shares of the Corporation shall be
made only on the books of the Corporation by the registered holder thereof, or
by his or her legal representative who shall furnish proper evidence of
authority to transfer, or by his or her attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the Corporation, and
on surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
ARTICLE VII
EMERGENCY BY-LAWS
7.1 ADOPTION OF EMERGENCE BY-LAWS. The Emergency By-Laws provided in
this ARTICLE VII shall be operative during any emergency in the conduct of the
business of the Corporation resulting from an attack on the United States or on
a locality in which the Corporation conducts its business or customarily holds
meetings of its Board of Directors or its stockholders, or during any nuclear or
atomic disaster, or during the existence of any natural or other catastrophe, or
other similar emergency condition, as a result of which a quorum of the Board of
Directors, or a standing committee thereof, cannot readily be convened for
action, notwithstanding any different provision in the other Articles of these
By-Laws or in the Articles of Incorporation of the Corporation or in the
Kentucky Business Corporation Act. To the extent not inconsistent with the
provisions of this Article, the By-laws provided in the other Articles thereof
shall remain in effect during such emergency and upon its termination, the
Emergency By-Laws shall cease to be operative.
(a) A meeting of the Board of Directors may be called by any officer or
director of the Corporation. Notice of the time and place of the meeting shall
be given by the person calling the meeting to such of the directors as it may be
feasible to reach by any available means of communication. Such notice shall be
given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
(b) The director or directors in attendance at the meeting shall constitute
a quorum.
(c) The Board of Directors, either before or during any such emergency, may
provide, and from time to time modify, lines of succession in the event that
during such an emergency, any or all officers or agents of the Corporation
shall, for any reason, be rendered incapable of discharging their duties.
(d) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the head office or designate
several alternative head offices or regional offices, or authorize the officers
to do so.
(e) No officer, director or employee acting in accordance with these
Emergency By-Laws shall be liable for actions taken with respect thereto, except
for willful misconduct. No officer, director or employee shall be liable for any
action taken by him or her in good faith in such an emergency in furtherance of
the ordinary business affairs of the Corporation, even though not authorized by
the By-Laws then in effect.
7.2 CHANGES IN EMERGENCE BY-LAWS. The Emergency By-Laws shall be
subject to repeal or change by further action of the Board of Directors or by
action of the shareholders, but no such repeal or change shall modify the
provisions of the next preceding paragraph with regard to action taken prior to
the time of such repeal or change. Any amendment of these Emergency By-Laws may
make any further or different provision that may be practical and necessary for
the circumstances of the emergency.
ARTICLE VIII
INDEMNIFICATION
8.1 DEFINITIONS. As used in this Article VIII:
(a) "Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal;
(b) "Party" includes a person who was, is or is threatened to be made a
named defendant or respondent in a Proceeding;
(c) "Expenses" include attorneys fees:
(d) "Officer" means any person serving as Chairman of the Board of
Directors, President, Vice President, Treasurer, Secretary, Financial Officer,
General Counsel or any other officer of the Corporation; and
(e) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise. A
Director shall be considered serving an employee benefit plan at the request of
the Corporation if his or her duties to the Corporation also impose duties on,
or otherwise involve services by, him or her to the plan or to participants in
or beneficiaries of the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a director.
8.2 INDEMNIFICATION BY CORPORATION.
(a) The Corporation shall indemnify any Officer or Director who is made a
Party to any Proceeding by reason of the fact that such person is or was an
Officer or Director if:
(1) Such Officer or Director conducted himself in good faith; and
(2) Such Officer or Director reasonably believed:
(i) In the case of conduct in his official capacity with the
Corporation, that his conduct was in the best interests of the
Corporation; and
(ii) In all other cases, that his conduct was at least not
opposed to the best interests of the Corporation; and
(3) In the case of any criminal Proceeding, he had no reasonable cause
to believe his conduct was unlawful.
(b) A Director's conduct with respect to an employee benefit plan for a
purpose he or she reasonably believes to be in the interest of the participants
in and beneficiaries of the plan shall be conduct that satisfies the requirement
of Section 8.2 (a)(2)(ii) of these By-Laws.
(c) Indemnification shall be made against judgments, penalties, fines,
settlements and reasonable Expenses, including legal Expenses, actually incurred
by such Officer or Director in connection with the Proceeding, except that if
the Proceeding was by or in the right of the Corporation, indemnification shall
be made only against such reasonable Expenses and shall not be made in respect
of any Proceeding in which the Officer or Director shall have been adjudged to
be liable to the Corporation. The termination of any Proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contenders or its
equivalent, shall not, by itself, be determinative that the Officer or Director
did not meet the requisite standard of conduct set forth in this Section 8.2.
(d) (1) Reasonable Expenses incurred by an Officer or Director
as a Party to a Proceeding with respect to which indemnity is to be provided
under this Section 8.2 shall be paid or reimbursed by the Corporation in advance
of the final disposition of such Proceeding provided:
(i) The Corporation receives (I) a written affirmation by the Officer
or Director of his or her good faith belief that he or she has met the
requisite standard of conduct set forth in this Section 8.2, and (II) the
Corporation receives a written undertaking by or on behalf of the Officer
or Director to repay such amount if it shall ultimately be determined that
he or she has not met such standard of conduct; and
(ii)The Corporation's Board of Directors (or other appropriate
decision maker for the Corporation) determines that the facts then known to
the Board of Directors (or decision maker) would not preclude
indemnification under Kentucky law.
(2) The undertaking required herein shall be an unlimited general
obligation of the Officer or Director but shall not require any security and
shall be accepted without reference to the financial ability of the Officer or
Director to make repayment.
(3) Determinations and authorizations of payments under this Section 8.2(d)
shall be made in the manner specified in Section 8.2(e) of these By-Laws.
(e) (1) The Corporation shall not indemnify an officer or Director under
this Section 8.2 unless authorized in the specific case after a determination
has been made that indemnification of the Officer or Director is permissible in
the circumstances because he or she has met the standard of conduct set forth in
this Section 8.2.
(2) Such determination shall be made:
(i) By the Corporation's Board of Directors by majority vote of a
quorum consisting of directors not at the time Parties to the Proceeding;
(ii) If a quorum cannot be obtained under Section 8.2(e)(2)(i) of
these By-Laws, by majority vote of a committee duly designated by the
Corporation's Board of Directors (in which designation directors who are
Parties may participate), consisting solely of two (2) or more directors
not at the time Parties to the Proceeding; or
(iii) By special legal counsel:
(I) Selected by the Corporation's Board of Directors or its committee
in the manner prescribed in Sections 8.2(e)(2)(i) and (ii) of these
By-laws; or
(II)If a quorum of the Board of Directors cannot be obtained under
Section
8.2(e)(2)(i) of these By-laws and a committee cannot be designated under Section
8.2(e)(2)(ii) of these By-laws, selected by a majority vote of the full Board of
Directors (in which selection directors who are Parties may participate); or
(iv) By the shareholders, provided that shares owned by or voted under
the control of Directors who are at the time parties to the Proceeding
shall not be voted on the determination.
(3) Authorization of indemnification and evaluation as to reasonableness of
Expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of Expenses shall be made by those entitled under Section
8.2(e)(2)(iii) of these By-laws to select counsel.
8.3 FURTHER INDEMNIFICATION. Notwithstanding any limitation imposed by
Section 8.2 of these By-laws or elsewhere and in addition to the indemnification
set forth in Section 8.2 of these By-laws, the Corporation, to the full extent
permitted by law, may agree by contract or otherwise to indemnify any Officer or
Director and hold him or her harmless against any judgments, penalties, fines,
settlements and reasonable Expenses actually incurred or reasonably anticipated
in connection with any Proceeding in which any Officer or Director is a Party,
provided the Officer or Director was made a Party to such Proceeding by reason
of the fact that he or she is or was an officer or Director of the Corporation
or by reason of any inaction, nondisclosure, action or statement made, taken or
omitted by or on behalf of the Officer or Director with respect to the
Corporation or by or on behalf of the Officer or Director in his or her capacity
as an officer or Director.
8.4 INSURANCE. The Corporation may, in the discretion of the Board of
Directors, purchase and maintain or cause to be purchased and maintained
insurance on behalf of all Officers and Directors against any liability asserted
against them or incurred by them in their capacity or arising out of their
status as an officer or Director, to the extent such insurance is reasonably
available. Such insurance shall provide such coverage for the Officers and
Directors as the Board of Directors may deem appropriate.
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENTS. The Board of Directors shall have the power and
authority to alter, amend or repeal By-Laws of the Corporation at any regular or
special meeting at which a quorum is present by the vote of a majority of the
entire Board of Directors, subject always to the power of the shareholders under
Kentucky law to change or repeal such By-Laws.
9.2 FISCAL YEAR. The Board of Directors shall have the power to fix,
and from time to time change, the fiscal year of the Corporation. Unless
otherwise fixed by the Board, the calendar year shall be the fiscal year.
9.3 DIVIDENDS. The Board of Directors may, from time to time, declare,
and the Corporation may pay, dividends on its outstanding shares in the manner
and upon the terms and conditions provided by law and its Articles of
Incorporation.
9.4 SEAL. The Board of Directors may adopt a corporate seal which shall
be circular in form and shall have inscribed thereon the name of the
Corporation, the state of incorporation, and the word "SEAL".
9.5 WAIVER OF NOTICE. Whenever any notice is required to be given under
the provisions of these By-Laws, or under the provisions of the Corporation's
Articles of Incorporation, or under the provisions of the corporation laws of
the Commonwealth of Kentucky, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be equivalent to the giving of such notice.
9.6 INSPECTION OF CORPORATE RECORDS. (A) Any shareholder of the
Corporation shall be entitled to inspect and copy, during regular business hours
at the Corporation's principal office, any of the following records of the
Corporation if such shareholder gives the Corporation written notice of his or
her demand at least five (5) business days before the date on which he or she
wishes to inspect and copy:
(1) The Corporation's Articles or Restated Articles of Incorporation and
all amendments to them currently in effect;
(2) The Corporation's By-Laws or Restated By-Laws and all amendments to
them currently in effect;
(3) Resolutions adopted by the Corporation's Board of Directors creating
one or more classes or series of shares, affixing their relative rights,
preferences and limitations, if shares issued pursuant to those resolutions are
outstanding;
(4) The minutes of all shareholders' meetings of the Corporation, and
records of all action taken by shareholders without a meeting, for the past
three years;
(5) All written communications to shareholders generally within the past
three years, including any financial statements furnished for the past three
years to shareholders as described in section 9.7 herein;
(6) A list of the names and business addresses of the Corporation's current
directors and officers; and
(7) The Corporation's most recent annual report delivered to the Secretary
of State under Kentucky Revised Statutes Section 271B.16-220.
(B) Any shareholder of the Corporation, provided that (a) such
shareholder's demand is made in good faith and for a proper purpose, (b) such
shareholder describes with reasonable particularity his or her purpose in the
records he or she desires to inspect, and (c) the records sought to be inspected
are directly connected with the shareholder's purpose, shall be entitled to
inspect and copy during regular business hours at a reasonable location
specified by the corporation, any of the following records of the Corporation,
provided the shareholder gives the Corporation written notice of his or her
demand at least five (5) business days before the day on which he or she wishes
to inspect and copy:
(1) Excerpts from minutes of any meeting of the Board of Directors, records
of any action of any committee of the Board of Directors while acting in place
of the Board of Directors on behalf of the Corporation, minutes of any meeting
of the shareholders, and records of action taken by the shareholders or Board of
Directors without a meeting, to the extent not subject to inspection under
Section 9.6 (A) of these By-Laws;
(2) Accounting records of the corporation; and
(3) The record of shareholders.
9.7 FINANCIAL STATEMENTS FOR SHAREHOLDERS. Upon the written request of
any shareholder or holder of voting trust certificates for shares of the
Corporation, the Corporation shall mail to such shareholder or holder of voting
trust certificates its most recent financial statements showing in reasonable
detail its assets and liabilities and the results of its operations. If the
Corporation indemnifies or advances expenses to a director pursuant to Kentucky
Revised Statutes Section 271B.8-510 to 271B.8-540 in connection with a
proceeding by or in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to its shareholders with or before the
notice of the next shareholders' meeting.
9.8 CONSTRUCTION. Unless the context specifically requires otherwise,
any reference in these By-Laws to any gender shall include all other genders;
any reference to the singular shall include the plural; and any reference to the
plural shall include the singular.
THE ABOVE AMENDED AND RESTATED BY-LAWS OF THIS
CORPORATION WERE ADOPTED BY THE BOARD OF DIRECTORS
AT A BOARD MEETING ON JULY 27, 1993
/s/ Charles S. Boyd
CHARLES S. BOYD
/s/ Charles O. Bush
CHARLES O. BUSH
/s/ E. Bruce Dungan
E. BRUCE DUNGAN
/s/ Warner U. Hines
WARNER U. HINES
/s/ John J. Hopkins
JOHN J. HOPKINS
/s/ John P. Stewart
JOHN P. STEWART
/s/ Michael M. Sullivan
MICHAEL M. SULLIVAN
/s/ Dr. John D. Sutterlin
DR. JOHN D. SUTTERLIN
/s/ William R. Sykes
WILLIAM R. SYKES
/s/ Joseph C. Yagel
JOSEPH C. YAGEL
<PAGE>
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
<PAGE>
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, 1997 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 Kentucky 100%
Lawrenceburg National Bank Kentucky 100%
Farmers Bank and Trust Company Kentucky 100%
Kentucky Banking Centers, Inc. Kentucky 100%
FCB Services, Inc. Kentucky 100%
Farmers Capital Insurance Company 1 Kentucky 100%
Farmers Bank Realty Co. 2 Kentucky
Frankfort ATM Ltd. 3 Kentucky
Leasing One Corporation 2 Kentucky
1 Dormant company, no activity to date.
2 A wholly-owned subsidiary of Farmers Bank & Capital Trust Co.
3 A fifty (50%) percent owned joint venture of Farmers Bank & Capital Trust Co.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extrated from the December
31, 1997 financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 75830
<INT-BEARING-DEPOSITS> 1300
<FED-FUNDS-SOLD> 109610
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119076
<INVESTMENTS-CARRYING> 95686
<INVESTMENTS-MARKET> 96541
<LOANS> 585940
<ALLOWANCE> 9114
<TOTAL-ASSETS> 1014183
<DEPOSITS> 834976
<SHORT-TERM> 50602
<LIABILITIES-OTHER> 11561
<LONG-TERM> 3053
0
0
<COMMON> 945
<OTHER-SE> 116099
<TOTAL-LIABILITIES-AND-EQUITY> 1014183
<INTEREST-LOAN> 52991
<INTEREST-INVEST> 11777
<INTEREST-OTHER> 2592
<INTEREST-TOTAL> 67360
<INTEREST-DEPOSIT> 25913
<INTEREST-EXPENSE> 27450
<INTEREST-INCOME-NET> 39910
<LOAN-LOSSES> 1830
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 30669
<INCOME-PRETAX> 19925
<INCOME-PRE-EXTRAORDINARY> 19925
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14103
<EPS-PRIMARY> 3.73
<EPS-DILUTED> 3.73
<YIELD-ACTUAL> 5.06
<LOANS-NON> 3137
<LOANS-PAST> 2196
<LOANS-TROUBLED> 1285
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8741
<CHARGE-OFFS> 2751
<RECOVERIES> 1294
<ALLOWANCE-CLOSE> 9114
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<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
