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, 1999
[ ] 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 - $.125 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 24, 2000 was $236,146,862.
As of March 24, 2000, there were 7,408,529 shares issued and outstanding.
Documents incorporated by reference:
Portions of the Registrant's 1999 Annual Report to Shareholders are
incorporated by reference into Part II. Portions of the Registrant's
Proxy Statement relating to the Registrant's 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III.
An index of exhibits filed with this Form 10-K can be found on page 15.
<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 10
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 12
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 13
Signatures 14
Index of Exhibits 15
<PAGE>
PART I
ITEM 1. BUSINESS
ORGANIZATION
Farmers Capital Bank Corporation (the "Registrant" or the "Company") 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"), Harrodsburg,
Kentucky; First Citizens Bank, Shepherdsville, 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 FCB Services, Inc., ("FCB Services"), a nonbank data processing subsidiary
located in Frankfort, Kentucky. The Registrant's banking operations are
aggregated into one reportable operating segment. As of December 31, 1999, 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 and 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, 1999, it had total consolidated assets of $476 million, including
net loans of $254 million. On the same date, total deposits were $395 million
and shareholders' equity totaled $43 million.
Farmers Bank had three subsidiaries at year end 1999: Farmers Bank Realty Co.
("Realty"), Leasing One Corporation ("Leasing One"), and Farmers Capital
Insurance Corporation ("Farmers Insurance"). Prior to 1997, Farmers Bank had a
fourth 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 $3.3 million on December 31, 1999.
Money One was incorporated in 1989 and until January 1, 1993, was a direct
subsidiary of the Registrant. It managed the consumer finance company, MOCC. At
December 31, 1996 it had $824 thousand in assets. As of the close of business on
December 31, 1996, Money One was dissolved and all assets were distributed to
Farmers Bank, it sole shareholder.
MOCC was established on June 1, 1994. It was a partnership engaged in consumer
lending activities under Chapter 288 of the Kentucky Revised Statutes. As
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 and is currently licensed
to conduct business in thirteen states. In 1997, it began to service leases for
unaffiliated third parties. At year end 1999 it had total assets of $18.8
million.
Farmers Insurance was organized in 1988 to engage in insurance activities
permitted to the Registrant by federal and state law. This corporation, which
had no activity prior to 1998, was capitalized by Farmers Bank in December 1998
and acts as an agent for Commonwealth Land Title Co. At year end 1999 it had
total assets of $30 thousand.
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 automatic teller machines in the Frankfort area. State National
Bank, a Frankfort bank not otherwise associated with the Registrant, also has a
50% interest in ATM.
On February 15, 1985, the Registrant acquired United Bank, a state chartered
bank originally organized in 1880. It is engaged in a general banking business
providing full service banking to individuals, businesses and governmental
customers. It conducts business in its principal office and two branches in
Woodford County, Kentucky. 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 in Midway. United Bank is the
largest bank chartered in Woodford County with total assets of $130 million and
total deposits of $111 million at December 31, 1999.
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. During 1998, it 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. Construction of the new site in
Harrodsburg was completed and operations began there in July 1999. Lawrenceburg
Bank conducts business at it Harrodsburg site and two branches in Anderson
County, Kentucky. Lawrenceburg Bank is the largest bank chartered in Mercer
County with total assets of $108 million and total deposits of $96 million at
December 31, 1999.
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. During 1997, it applied and was granted permission by
the Kentucky Department of Financial Institutions to move its charter and main
office to Shepherdsville, Kentucky in Bullitt County. First Citizens Bank
completed construction of the site and began operations in April 1998. During
1999, First Citizens Bank closed its South Dixie branch in Elizabethtown,
Kentucky. It now conducts business in its four branches in Hardin County,
Kentucky along with its principal office in Shepherdsville. First Citizens Bank
is the second largest bank chartered in Bullitt County with total assets of $132
million and total deposits of $110 million at December 31, 1999.
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. As a result of
this notice, the branch was relocated in the downtown Georgetown area. Farmers
Georgetown Bank is the largest bank chartered in Scott County with total assets
of $139 million and total deposits of $113 million at December 31, 1999.
On June 15, 1987, the Registrant acquired Horse Cave State 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. 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. Ky. Banking Centers
is the fourth largest bank chartered in Glasgow with total assets of $85 million
and total deposits of $70 million at December 31, 1999.
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 made in the low to moderate
range, secured by the real estate not exceeding 80% loan to value. Other
commercial loans are asset based loans secured by equipment and lines of credit
secured by receivables. Secured and unsecured consumer loans generally are made
for automobiles and other motor vehicles. In most cases loans are restricted to
the subsidiaries' general market area.
FCB Services, organized in 1992, provides data processing services and support
for the Registrant and its subsidiaries. It is located in Frankfort, Kentucky.
During 1994, FCB Services began performing data processing services for
nonaffiliated banks. FCB Services had total assets of $2.3 million at December
31, 1999.
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 subsidiary banks also are affected by
other banking legislation and policies and practices of various regulatory
authorities. Such legislation and policies include statutory maximum rates on
some loans, reserve requirements, domestic monetary and fiscal policy, and
limitations on the kinds of services that may be offered.
The Bank Holding Company Act formerly prohibited the Federal Reserve Board from
approving an application from a bank holding company to acquire shares of
another bank across its own state lines. However, effective September 1995, new
legislation abolished those restrictions and now allows bank holding companies
to acquire shares of out of state banks, subject to certain conditions.
Currently, the Company has no plans to purchase shares of an out of state bank.
The Financial Reform, Recovery and Enforcement Act of 1989 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 Federal Deposit
Insurance Corporation 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 that
will benefit the community.
Upon the Gramm-Leach-Bliley Act ("Act") becoming law on November 12, 1999, the
Registrant has the option of becoming a Financial Holding Company. Currently,
the Registrant is a multi-bank holding company whose activities are limited by
the Federal Reserve. Under the Act, the Federal Reserve will continue to be the
primary regulatory agency for Financial Holding Companies, but will have a much
more expanded list of permissible activities.
At this time, the Registrant has not yet decided to become a Financial Holding
Company, but if it does so elect, it may become one by certifying to the Federal
Reserve that all its banks are well managed and well capitalized and that each
has a CRA rating of at least satisfactory. The Registrant's subsidiary banks
have received no criticisms from regulatory authorities. All are categorized as
well capitalized and, since all have CRA ratings of at least satisfactory, it is
believed that the Registrant could easily qualify as a Financial Holding
Company.
If, as a Financial Holding Company, the Registrant engages in other non-bank
activities, those activities will be regulated by state or federal agencies
depending on the activities involved. The Federal Reserve will continue to have
oversight regulatory authority.
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 Corporation.
The primary areas of competition pertain to quality of services and interest
rates and fees charged on loans and deposits.
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, 1999, the Registrant and its subsidiaries had 443 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. Employees are not represented by a union. Management and employee
relations are good.
During 1997, the Registrant's Board of Directors approved its Stock Option Plan
("Plan"), which grants certain eligible 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 was subsequently ratified by the Registrant's shareholders at
its annual meeting held on May 12, 1998.
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 in Harrodsburg and its two branch sites in Lawrenceburg. 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. Farmers Georgetown Bank owns its main office,
another branch in Georgetown, and one in Stamping Ground, Kentucky. Farmers
Georgetown Bank's third branch is located in a leased facility. Ky. Banking
Centers owns its main office in Glasgow, Kentucky and its branch site in Horse
Cave, Kentucky. It 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 a benefit for 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 certification,
the complaint has been amended to join additional Bondholders as plaintiffs. The
plaintiffs claim to hold Bonds having an aggregate face value of $430,000.
Recently, the plaintiffs filed a motion for leave to amend their complaint. The
Amended Complaint would abandon the negligence and aiding and abetting
misappropriation of funds claims and would reassert the class action
allegations. Farmers Bank has opposed the reassertion of the class action
allegations, but the Court has not yet ruled on the motion. The case is
currently scheduled for trial beginning on March 28, 2000. Each side has
retained expert witnesses and additional depositions are being scheduled.
Additionally, Farmers Bank is preparing to depose approximately eight plaintiffs
who are willing and able to come to Louisville for their depositions. Farmers
Bank has moved to dismiss the remaining plaintiffs (approximately 35) who are
unwilling and unable to come to Louisville for depositions or trial.
Additionally, Farmers Bank has moved for summary judgment on plaintiffs'
commercial bribery claims, aiding and abetting misappropriation of funds claims,
and has asserted Farmers Banks reliance on the advice of its counsel and
financial consultants as a complete defense to plaintiffs' claims. The
plaintiffs have not yet responded nor has the Court ruled upon any of these
motions. Farmers Bank is vigorously contesting the plaintiffs' allegations and
intends to continue to do so. It is not possible at this stage of the
proceedings to make any prediction as to the outcome.
As of December 31, 1999, there were various other pending legal actions and
proceedings against the Company, including these above, arising from the normal
course of business and in which claims for damages are asserted. Management,
after discussion with legal counsel, believes that these actions are without
merit and that the ultimate liability resulting from these legal actions and
proceedings, if any, will not have a material adverse effect upon the
consolidated financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information set forth under the sections "Shareholder Information" and
"Stock Prices" on page 19 of the 1999 Annual Report to Shareholders is hereby
incorporated by reference. Additional information set forth under Note 16 to the
Registrant's Consolidated Financial Statements on page 36 of the 1999 Annual
Report to Shareholders is also hereby incorporated by reference.
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. Knight Securities LP
(502) 588-8400 or (800) 302-9197
(800) 444-1854
J.C. Bradford and Co., Inc. Morgan, Keegan and Company
(800) 443-8749 (800) 260-0280
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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December 31,
(In thousands, except per share data) 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $69,034 $69,681 $67,360 $67,485 $67,261
Interest expense 27,184 29,147 27,450 28,703 28,115
Net interest income 41,850 40,534 39,910 38,782 39,146
Provision for loan losses 2,863 1,134 1,830 4,162 3,727
Net income 13,930 14,247 14,103 12,656 10,389
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PER SHARE DATA
Net income -
Basic and diluted $1.86 $1.89 $1.86 $1.65 $1.34
Cash dividends declared 1.13 1.00 .855 .745 .675
Book value 16.82 16.47 15.48 14.43 13.57
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Percentage of net income to:
Average shareholders' equity (ROE) 11.20% 11.88% 12.50% 11.80% 10.20%
Average total assets (ROA) 1.41 1.49 1.56 1.41 1.21
Percentage of dividends declared
to net income 60.66 53.02 45.90 45.21 50.24
Percentage of average shareholders'
equity to average total assets 12.58 12.55 12.46 11.94 11.81
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Total shareholders' equity $125,106 $123,839 $117,044 $109,596 $104,929
Total assets 1,039,787 992,338 1,014,183 925,319 906,113
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic and diluted 7,478 7,555 7,572 7,684 7,732
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</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion on pages 8 through 20 of the 1999 Annual Report to Shareholders
is herby incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the item "Market Risk Management" on page 17 of
the 1999 Annual Report to Shareholders is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth below on pages 22 through 45 of the 1999 Annual Report
to Shareholders is hereby incorporated by reference:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Shareholder Information
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant has had no disagreement on accounting and financial disclosure
matters and has not changed accountants during the two year period ending
December 31, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Positions and Years of Service
Offices With With the
Executive Officer 1 Age the Registrant Registrant
- ------------------- --- --------------------------- ----------------
Charles S. Boyd 58 President and CEO, 36*
Director 2
James H. Childers 57 Executive Vice President, 30*
Secretary, General Counsel,
Director 3
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 9, 2000 which will be filed with the
Commission on or about April 3, 2000, pursuant to Regulation 14A.
* Includes years of service with the Registrant and Farmers Bank.
1 For Regulation O purposes, Frank W. Sower, Jr., Chairman of the Registrant's
board of directors, is considered an executive officer in name only.
2 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).
3 Also a director of Farmers Bank, Ky. Banking Centers, First Citizens Bank,
and Farmers Insurance.
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 9, 2000 which will be filed
with the Commission on or about April 3, 2000, pursuant to Regulation 14A.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1999 Annual Report
To Shareholders
(a)1. FINANCIAL STATEMENTS Page
Report of Independent Accountants 22
Consolidated Balance Sheets at
December 31, 1999 and 1998 23
Consolidated Statements of Income
for the years ended December 31, 1999, 1998 and 1997 24
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997 25
Consolidated Statements of Changes in
Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997 26
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 27
Notes to Consolidated Financial Statements 28-42
(a)2. FINANCIAL STATEMENT SCHEDULES
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.
(a)3. EXHIBITS:
13. Annual Report to Shareholders
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
27. Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K
The Registrant has filed no reports on Form 8-K during the three month
period ended December 31, 1999
(c) EXHIBITS
See Index of Exhibits set forth on page 15.
(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 S. Boyd
President and Chief Executive Officer
Date: 3/20/00
-------------------------------------
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 3/20/00
- ----------------------- and Director (principal executive --------------------
Charles S. Boyd officer of the Registrant)
/s/ Frank W. Sower, Jr. Chairman 3/20/00
- ----------------------- --------------------
Frank W. Sower, Jr.
/s/ G. Anthony Busseni Director 3/20/00
- ----------------------- --------------------
G. Anthony Busseni
/s/ Lloyd C Hillard, Jr. Director 3/18/00
- ------------------------ --------------------
Lloyd C. Hillard, Jr.
/s/ J. D. Sutterlin Director 3/21/00
- ----------------------- --------------------
Dr. John D. Sutterlin
/s/ Stokes A. Baird Director 3/17/00
- ----------------------- --------------------
Stokes A. Baird, IV
/s/ Harold G. Mays Director 3/24/00
- ----------------------- --------------------
Harold G. Mays
/s/ Cecil Bell, Jr. Director 3/20/00
- ----------------------- --------------------
Cecil D. Bell, Jr.
Director
- ----------------------- --------------------
Michael M. Sullivan
Director
- ----------------------- --------------------
J. Barry Banker
/s/ J. H. Childers Director 3/20/00
- ----------------------- --------------------
James H. Childers
Director
- ----------------------- --------------------
Robert Roach, Jr.
/s/ C. Douglas Carpenter Vice President and CFO 3/16/00
- ------------------------ (principal financial and --------------------
C. Douglas Carpenter accounting officer)
<PAGE>
INDEX OF EXHIBITS
Page
13. Annual Report to Shareholders Enclosed
21. Subsidiaries of the Registrant 16
23. Independent Auditors' Consent 17
27. Financial data Schedule (for SEC use only)
<PAGE>
Exhibit 13
1999 ANNUAL REPORT TO SHAREHOLDERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
(In thousands, except per share data) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $69,034 $69,681 $67,360 $67,485 $67,261
Interest expense 27,184 29,147 27,450 28,703 28,115
Net interest income 41,850 40,534 39,910 38,782 39,146
Provision for loan losses 2,863 1,134 1,830 4,162 3,727
Net income 13,930 14,247 14,103 12,656 10,389
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net income -
Basic and diluted $1.86 $1.89 $1.86 $1.65 $1.34
Cash dividends declared 1.13 1.00 .855 .745 .675
Book value 16.82 16.47 15.48 14.43 13.57
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Percentage of net income to:
Average shareholders' equity (ROE) 11.20% 11.88% 12.50% 11.80% 10.20%
Average total assets (ROA) 1.41 1.49 1.56 1.41 1.21
Percentage of dividends declared
to net income 60.66 53.02 45.90 45.21 50.24
Percentage of average shareholders'
equity to average total assets 12.58 12.55 12.46 11.94 11.81
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $125,106 $123,839 $117,044 $109,596 $104,929
Total assets 1,039,787 992,338 1,014,183 925,319 906,113
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic and diluted 7,478 7,555 7,572 7,684 7,732
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 2
Farmers Capital Bank Corporation Board of Directors and Officers 3
Affiliates' Directors and Officers 4
Glossary of Financial Terms 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Management's Report on Responsibility for Financial Reporting 21
Independent Auditors' Report 22
Consolidated Balance Sheets 23
Consolidated Statements of Income 24
Consolidated Statements of Comprehensive Income 25
Consolidated Statements of Changes in Shareholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
Shareholder Information 45
<PAGE>
LETTER TO OUR SHAREHOLDERS
In 1999, Farmers Capital Bank Corporation took advantage of the strong
economies in its markets to expand its loan portfolio. While retaining our
commitment to credit quality, we increased loan volumes by over $38 million or
6.4%. Our correspondent banking effort continues to contribute to these
increases by developing relationships with banks throughout the Commonwealth of
Kentucky. Total deposits also increased in 1999 compared to 1998 by
approximately $32 million or 3.9%. This growth was obtained while continuing to
maintain a strong net interest margin of 4.91%. During 2000, we will continue to
look for opportunities for profitable expansion within our core banking
activities.
While net income of $13.9 million represented a slight decline in earnings
from 1998, we are well positioned to achieve higher profitability during 2000.
We continue to focus on maintaining and increasing our net interest income while
maintaining our expense controls. As such, net interest income increased by 3.2%
in 1999 compared to 1998, while operating expenses only increased 1.2%. These
expenses were held at this level even with the expansion of one location and our
increase in loan and deposit volumes.
We are excited with the advent of the year 2000. For us it signifies
undertaking new challenges and moving into new areas. We are looking at the
future with excitement and promise. Operationally we are embracing new
technology for ourselves and our affiliates. In the final board meeting of 1999,
the board of directors unanimously approved Internet Banking, Archival Imaging,
and a Wide Area Network.
While Internet Banking may be a defensive measure for many community banks,
we are seeing a true need for it in our markets. A majority of our customers
commute to work, and the banking hours of the past do not fit their schedules.
By offering them the ability to bank on-line, we are giving them convenience.
Where in the past we have discussed bricks and mortar, in these advanced high
tech days, "clicks and mortar" is a better description of banking options.
Archival imaging is the means to capture the image of documents, mainly
checks, and store them electronically instead of the space wasting method of
warehousing the hard copy. With the advances in imaging, the electronic image is
accepted as a legal document. Imaging will provide cost savings by eliminating
the need for storage and saving time in document research duties. Also, it
allows FCB Services, Inc., our data processing affiliate, another offering when
bidding on outside bank processing. For the business customers of our banks,
imaging is a requested option; most businesses prefer receiving their statement
images on diskette or CD-ROM to facilitate reconciliation methods. In the near
future, with the unlimited ability of the Internet, our customers will be able
to access images of their canceled checks while banking on-line.
The Wide Area Network (WAN) will enhance the delivery of Imaging and
Internet Banking for Farmers Capital Bank Corporation affiliates and also allow
for highly sophisticated applications of the future. Currently, we have radio
and satellite communication systems in place in our branches. These systems are
fast reaching their design limits and are not capable of carrying the volume or
type of communication required by today's new applications. The new WAN system
will provide us increased reliability and enhanced support; and because it is
the industry standard, the components and services are competitively priced.
Additionally, WAN offers scalability; this system with its flexible band width
is able to grow as more and more applications are developed.
All three of these projects are integral to how we deliver our products and
services to our customers. Technology is not going to die down; indeed, with the
advancement of technology, the opportunities are astonishing. We must stay
abreast of new developments to examine how they can improve our delivery
methods. However, we are enthusiastic that we can accomplish these tasks; we
have talented individuals in our affiliate and corporate offices whose energetic
attitudes kindle in all of us the goal to achieve our best.
Of these individuals, two need mentioning. Allison Gordon has joined the
corporate offices as Senior Vice President. Ms. Gordon's strengths lie in her
ability to bring together ideas, turn them into projects, and select the people
to carry them out. Her fresh ideas will provide more enthusiasm throughout our
companies. Previously Ms. Gordon held the title of Executive Vice President, FCB
Services, Inc.; she has also served as Executive Vice President of Lawrenceburg
National Bank and prior to that was Chief Financial Officer of the Corporation.
Karen Wade, who came to us from Central Bank of Lexington, Kentucky, now
holds the FCB Services' Executive Vice President position. Ms. Wade brings to
the table a vast array of talents; she has previously worked in management,
operations, and retail. Her addition to the FCB Services' staff adds a new depth
to their proven qualities.
Farmers Capital Bank Corporation is prepared for the challenges of the new
century. We are eager for the tasks at hand and those on the horizon. During our
strategic planning day held last year in November, we evidenced a newfound zeal
in our people. Collectively we are ready to face challenges with tried and true
ways, but also with the tools new technology and other advancements have given
us. Working harder, working smarter, your company is committed to the ongoing
success of Farmers Capital Bank Corporation.
/s/Frank W. Sower, Jr. /s/Charles S. Boyd
Frank W. Sower, Jr. Charles S. Boyd
<PAGE>
FARMERS CAPITAL BANK CORPORATION BOARD OF DIRECTORS
Frank W. Sower, Jr., Chairman, retired Appeals Officer, Internal Revenue Service
Charles S. Boyd, President and CEO of the Corporation
Stokes A. Baird, IV, Attorney and Chairman of the Board of Directors of
Kentucky Banking Centers, Inc.
J. Barry Banker, President of the Stewart Home School
Cecil D. Bell, Jr., Chairman of the Board of Directors of Farmers Bank and
Trust Company
G. Anthony Busseni, President and CEO of Farmers Bank & Capital Trust Co.
James H. Childers, Executive Vice President, Secretary and General Counsel of
the Corporation
Lloyd C. Hillard, Jr., President and CEO of First Citizens Bank
Harold G. Mays, President of H.G. Mays Corporation, an asphalt paving firm
Robert Roach, Jr., retired Teacher, City Commissioner
Michael M. Sullivan, retired Senior Vice President of FCB Services, Inc.
Dr. John D. Sutterlin, retired Dentist and Chairman of the Board of Directors
of Farmers Bank & Capital Trust Co.
E. Bruce Dungan, Advisory Director, retired President and CEO of Farmers Capital
Bank Corporation
Charles T. Mitchell, CPA, Advisory Director, Consultant, Charles T. Mitchell
Co., CPA
Dr. John P. Stewart, Chairman Emeritus, retired Physician, Director of Stewart
Home School
OFFICERS
Charles S. Boyd, President and CEO
James H. Childers, Executive Vice President, Secretary and General Counsel
Allison B. Gordon, Senior Vice President
C. Douglas Carpenter, Vice President, Chief Financial Officer
Dawn M. Castanis, CPA, Vice President, Auditing
Linda L. Faulconer, Vice President, Human Resources
Janelda R. Mitchell, Vice President, Marketing
Anna Kaye Hall, Assistant Vice President, Finance
Mark A. Hampton, CPA, Assistant Vice President, Finance
Ann Hodgkin, Human Resources Officer
Teresa Tipton, Human Resources Officer
<PAGE>
AFFILIATES' DIRECTORS AND OFFICERS
FARMERS BANK & CAPITAL TRUST CO.
member FDIC
DIRECTORS
Dr. John D. Sutterlin, Chairman
C. Gary Adkinson
Clyde P. Baldwin
Charles S. Boyd
G. Anthony Busseni
James H. Childers
Don C. Giles
Robert W. Kellerman
David R. Lee
Marvin E. Strong, Jr.
William R. Sykes
John J. Hopkins, Advisory Director
Frank W. Sower, Advisory Director
Joseph C. Yagel, Jr., Advisory Director
OFFICERS
G. Anthony Busseni, President and CEO
Bruce W. Brooks, Executive Vice President, Chief Lending Officer and
Environmental Officer
Elizabeth D. Hardy, Senior Vice President, Retail
Rickey D. Harp, Senior Vice President, Senior Trust Officer
Fontaine Banks, III, Vice President, Investments
George Burgess, Vice President, Commercial Loans
Gregory S. Burton, Vice President, Commercial Loans
L. Hobbs Cheek, CPA, Vice President, Financial Officer
Barbara Conway, Vice President, Main Office Manager
Jack Diamond, Vice President, Trust Investment Officer
Bruce G. Dungan, Vice President, Retail, Security Officer
Richard Gobber, Vice President, Retail
Sarah Gowins, Vice President, Commercial Loans
Jane Sweasy, Vice President, East Branch Manager
Nancy W. Whitaker, Vice President, Senior Trust Officer
Brenda Y. Rogers, Executive Secretary
Patsy Briscoe, Assistant Vice President, Loan Administration
Gail Combs, Assistant Vice President, Franklin Square Branch Manager
Nancy Gatewood, Assistant Vice President, West Branch Manager
Judy Isaacs, Assistant Vice President
Kathy R. Mangeot, Assistant Vice President, Trust Officer
Lydwina Napier, Assistant Vice President, Commercial Loans
Patricia Norris Peavler, Assistant Vice President, Marketing
Jo Ann Reynolds, Assistant Vice President, Investments
Deborah West, Assistant Vice President, Cardinal Hills Branch Manager
Bobby Hall, Trust Officer
Alice Jones, Trust Officer
Wesley Stivers, Investment Officer
Margaret Colston, Assistant Cashier, Retail Services
Jennifer Parrish, Assistant Cashier, Retail Services
Holly B. True, Assistant Cashier
Greg Howard, Assistant Manager, Main Office
Joan Lee, Assistant Manager, Franklin Square
Charles A. Wilkerson, Commercial Loan Officer
C. Ray Baldwin, Property Management Director
Sally L. Bell, Assistant Trust Operations Manager
Dorothy H. Switzer, Director of Capital First Travelers
UNITED BANK & TRUST CO.
member FDIC
DIRECTORS
W. Benjamin Crain, Chairman
Charles S. Boyd
Bobby G. Dotson
John J. Greely, III
J. Stephen Hogg
Michael L. Lawson
J. C. Moraja
Denny Nunnelley
Leighton Riddle
James E. Staples
Hampton H. Henton, Advisory Director
Howard B. Montague, Advisory Director
Ben F. Roach, MD, Advisory Director
OFFICERS
J. C. Moraja, President and CEO
Paul A. Edwards, Executive Vice President
Linda C. Bosse, Vice President, Cashier
Joyce L. Eaves, Vice President
Bruce Marshall, Vice President
Spencer A. Wall, Vice President, Branch Manager
Cornelia T. Ethington, Assistant Vice President
Leisa M. Newton, Assistant Vice President
Betty K. Poynter, Assistant Vice President, Human Resources
Rick Roberts, Assistant Vice President
Rita Green, Loan Officer
John R. Thompson, Loan Officer
Evie P. Knight, Assistant Cashier, Security Manager
Carolyn C. Logan, Assistant Cashier
Carolyn F. Patterson, Assistant Cashier
Sherry T. Reynolds, Assistant Cashier
Patricia R. Stokley, Executive Secretary
LAWRENCEBURG NATIONAL BANK
member FDIC
DIRECTORS
E. Glenn Birdwhistell, Chairman
William T. Bond
Charles S. Boyd
Charles L. Cammack
Keith Freeman
Tom D. Isaac
James McGlone
Donald F. Peach
Oneita M. Perry
David Shadburne, CPA
Paul Vaughn, Jr.
Thomas B. Ripy, Advisory Director
OFFICERS
Charles L. Cammack, President and CEO
Paul Vaughn, Jr., Executive Vice President, Senior Trust Officer
Gail Gottshall, Executive Vice President
Bob Baughman, Vice President
Ben Birdwhistell, Vice President
Timothy A. Perry, Vice President, Compliance
Bonnie S. Childs, Assistant Vice President, Marketing Representative
Clark Gregory, Assistant Vice President
Linda B. Hahn, Assistant Vice President
Barbara Markwell, Assistant Vice President, Cashier
Warren R. Leet, Assistant Vice President
Drayma Holmes, Assistant Vice President, Branch Manager
Libby Goodlett, Operations Officer
Angela Raley, Accounting Officer
Shelly Grimes, Assistant Branch Manager
FIRST CITIZENS BANK
member FDIC
DIRECTORS
James E. Bondurant, Chairman
R. Terry Bennett
Charles S. Boyd
Laymon Byers
James H. Childers
R. T. Clagett, DMD
Patricia V. Durbin
William Godfrey, MD
Gerald R. Hignite
Lloyd C. Hillard, Jr.
Ray Mackey
Virgil T. Price, DMD
George Roederer
Martha G. Davis, Director Emeritus
OFFICERS
Lloyd C. Hillard, Jr., President and CEO
H. Y. Davis, IV, Senior Vice President, Senior Loan Administrator
Marilyn B. Ford, Senior Vice President, Cashier and Bank Secrecy Officer
Jacqueline Hamm, Senior Vice President and Director of Trust Investment Center
Patricia B. Paris, Senior Vice President, Controlle
Richard N. Clements, Vice President, Bullitt County Branch Manager
Scott T. Conway, Vice President, Loan Officer
David E. Hunt, Vice President, Radcliff Branch Manager
Marquetta Lively, Vice President, Loan Officer
Mary Lou Mobley, Vice President, CRA Officer and Compliance Officer
Thomas S. Reynolds, Vice President, Trust Operations
Brenda Fullerton, Assistant Vice President, Members First Coordinator
Patricia A. Johnson, Assistant Vice President, Operations
Jeffrey S. Pendleton, Assistant Vice President, Allotment Department
Ronald G. Penwell, Assistant Vice President, Mulberry Branch Manager
Diana Byers, Assistant Cashier, Main Office Branch Manager
Mary P. Edlin, Assistant Cashier, Deposit Processing
Carol A. Goodman, Assistant Cashier and Director of Human Resources
Phyllis Higdon, Assistant Cashier, Branch Manager
Debbie Roberts, Assistant Branch Manager, Bullitt County Branch
Connie Kersey, Operations Officer, Radcliff Branch
Kendra Stewart, Marketing Director
FARMERS BANK AND TRUST COMPANY
member FDIC
DIRECTORS
Cecil D. Bell, Jr., Chairman
Charles S. Boyd
Allison B. Gordon
Frank R. Hamilton, Jr.
Vivian M. House
R. Sharon McMillin
Joseph C. Murphy
Gervis Showalter
Bobby Vance
J. C. Bradley, Jr., Director Emeritus
Rollie D. Graves, Director Emeritus
Marion F. Hall, Director Emeritus
Dr. Horace T. Hambrick, Director Emeritus
W. Carrick James, Director Emeritus
OFFICERS
Joseph C. Murphy, President and CEO
Thomas P. Porter, Executive Vice President
J. Michael Easley, Vice President
James L. Ewbank, Vice President
Tina M. Johnston, Vice President, Chief Financial Officer
Lynn C. McKinney, Vice President and Cashier
Michael E. Schornick, Jr., Vice President
Kimberly E. Sharp, Vice President
Susan K. Tackett, Vice President
Wanda C. Wilson, Vice President
Bonnie M. Glass, Assistant Vice President
Karen K. Jarvis, Assistant Vice President
Paula S. Moran, Assistant Vice President
Deborah L. Marshall, Assistant Vice President
Linda F. Muszynski, Assistant Vice President
Calvin Petrey, Assistant Vice President
Kimberly T. Thompson, Assistant Vice President
Carole S. Wagoner, Assistant Vice President
Lorraine B. Baldwin, Assistant Cashier
Judy F. Sinkhorn, Assistant Cashier
Phyllis J. True, Assistant Cashier
KENTUCKY BANKING CENTERS, INC.
member FDIC
DIRECTORS
Stokes A. Baird, IV, Chairman
Charles S. Boyd
Sue Bunnell
James H. Childers
Steve Hayes
Odell Martin
Phillip Patton
David Shadburne, CPA
W. T. Austin, Director Emeritus
OFFICERS
Sue Bunnell, President and CEO
David Shadburne, CPA, Executive Vice President and COO
Lewis Bauer, Senior Vice President
Jeffrey Edwards, Vice Presiden
Linda Forbes, Vice President
Vanessa Puckett, Vice President
Angela Banks, Assistant Vice President
Jean Bastin, Assistant Vice President
Jane T. Howell, Assistant Vice President
Greg Isenberg, Assistant Vice President
Patty J. Wright, Assistant Vice President
Daryl Lowe, Cashier and Head Teller
Cindy Atwell, Loan Officer
Karisa Clark, Loan Officer
Ramona Fancher, Assistant Cashier
Carolyn Russell, Assistant Cashier
Sharon Williams, Assistant Cashier
Mellyn Church, Compliance Officer
FCB SERVICES, INC.
DIRECTORS
E. Bruce Dungan, Chairman
Charles S. Boyd
Sue Bunnell
G. Anthony Busseni
Charles L. Cammack
James H. Childers, Secretary
Allison B. Gordon
Lloyd C. Hillard, Jr.
Donald R. Hughes, Jr.
J. C. Moraja
Joseph C. Murphy
Michael M. Sullivan
Karen R. Wade
OFFICERS
Donald R. Hughes, Jr., President and CEO
Karen R. Wade, Executive Vice President
William Bell, Vice President
Georgeann Burton, Vice President
Michael Hedges, Vice President
Martin Serafini, Vice President
Bill Ballinger, Assistant Vice President
Steve Bolin, Assistant Vice President
Jeffrey S. Brewer, Assistant Vice President
Rita Kennedy, Assistant Vice President
Michael S. Sullivan, Assistant Vice President
LEASING ONE CORPORATION
DIRECTORS
G. Anthony Busseni, Chairman
C. Douglas Carpenter
L. Hobbs Cheek, CPA
Charles J. Mann
Marvin E. Strong
Bruce W. Brooks
David Lee
OFFICERS
Charles J. Mann, President and CEO
Mark Lester, Vice President
Jim Morris, Vice President
FARMERS CAPITAL INSURANCE CORPORATION
DIRECTORS
James H. Childers, Chairman
G. Anthony Busseni
Sue Coles
Jamey Bennett
OFFICERS
James H. Childers, Chairman
G. Anthony Busseni, President
Sue Coles, Secretary
Jamey Bennett, Vice President
doing business as:
CAPITAL INSURANCE GROUP
FARMERS TITLE COMPANY
<PAGE>
GLOSSARY OF FINANCIAL TERMS
ALLOWANCE FOR POSSIBLE LOAN LOSSES
A valuation allowance to offset credit losses specifically identified in the
loan portfolio, as well as management's best estimate of probable losses
inherent in the remainder of the portfolio at the balance sheet date. The
allowance is determined by management as the result of the assessment of the
risks in the loan portfolio based on past experience. This assessment includes,
but is not limited to, consideration of the current economic conditions, changes
in mix and volume of the loan portfolio and historical net loan charge off
experience.
DIVIDEND PAYOUT
Cash dividends paid on common shares, divided by net income.
BASIS POINTS
Each basis point is one hundredth of one percent. Basis points are calculated by
multiplying percentage points times 100. For example: 3.7 percentage points
equals 370 basis points.
INTEREST RATE SENSITIVITY
The relationship between interest sensitive earning assets and interest bearing
liabilities.
NET CHARGE OFFS
The amount of total loans charged off net of recoveries of loans which have been
previously charged off.
NET INTEREST INCOME
Total interest income less total interest expense.
NET INTEREST MARGIN
Net interest income expressed as a percentage of average earning assets.
NET INTEREST SPREAD
The difference between the yield on earning assets and the rate paid on interest
bearing funds.
OTHER REAL ESTATE OWNED
Real estate not used for banking purposes. For example, real estate acquired
through foreclosure.
PROVISION FOR LOAN LOSSES
The charge against current income needed to maintain an adequate allowance for
possible loan losses.
RETURN ON AVERAGE ASSETS (ROA)
Net income divided by average total assets. Measures the relative profitability
of the resources utilized by the Company.
RETURN ON AVERAGE EQUITY (ROE)
Net income divided by average common equity. Measures the profitability of the
shareholders' investment in the Company.
TAX EQUIVALENT BASIS
Income from tax exempt loans and investment securities has been increased by an
amount equivalent to the taxes which would have been paid if this income was
taxable at statutory rates.
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
The number of shares determined by relating (a) the portion of time within a
reporting period that common shares have been outstanding to (b) the total time
in that period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following pages present management's discussion and analysis of the
consolidated financial condition and results of operations of Farmers Capital
Bank Corporation (the "Company"), which include both its banking and nonbanking
subsidiaries. Banking subsidiaries include Farmers Bank & Capital Trust Co. in
Frankfort, KY and its insurance and leasing company subsidiaries; Farmers Bank
and Trust Company in Georgetown, KY; First Citizens Bank in Shepherdsville, KY;
United Bank & Trust Co. in Versailles, KY; Lawrenceburg National Bank in
Harrodsburg, KY; and Kentucky Banking Centers, Inc. in Glasgow, KY. The
Company's only nonbank subsidiary is FCB Services, Inc., a data processing
subsidiary located in Frankfort, KY. The following discussion should be read in
conjunction with the audited consolidated financial statements and related notes
that follow.
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
management of 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.
RESULTS OF OPERATIONS
Farmers Capital Bank Corporation recorded net income of $13.9 million for the
year ended December 31, 1999 compared to $14.2 million for the same period in
1998. This represents a decrease of $317 thousand or 2.2%. Basic and diluted net
income per share was $1.86 for the year ended December 31, 1999 compared to
$1.89 for the same period in 1998, a decrease of $.03 or 1.6%. The decrease in
net income for 1999 is primarily attributed to an increase in the provision for
loan losses of $1.7 million. A significant portion of the increase in provision
relates to the deterioration of a single commercial loan credit in the fourth
quarter of 1999.
INTEREST INCOME
Interest income results from interest earned on earnings assets, which primarily
include loans and securities. Interest income is affected by the volume,
composition of earning assets, and the related rates earned thereon. Total
interest income on a tax equivalent basis was $71.2 million, a decrease of $465
thousand or less than 1% from the prior year. The decrease in interest income
was driven by decreases in the average rates earned in each category of earning
assets. A $30.8 million increase in the average balance of earning assets nearly
offset the 34 basis point decrease in the overall average rate earned on earning
assets.
The average balance of taxable securities increased $19.5 million or 13.6%
compared to a year earlier. Interest income on taxable securities increased $593
thousand as a result of the increase in average outstandings and offset a
decrease in the average rate earned of 35 basis points. Interest on nontaxable
securities increased $310 thousand or 6.0% due primarily to a $5.5 million
increase in the average balance. The tax equivalent average rate earned on
nontaxable securities was 6.6% in 1999, a decrease of 7 basis points from 1998.
Interest income on time deposits with banks, federal funds sold, and securities
purchased under agreements to resell totaled $1.4 million for 1999, a decrease
of $1.5 million or 51%. The decrease is attributable to a $23.4 million decline
in the average balance. The average rate earned on these temporary investments
was 4.7% for 1999 compared to 5.4% in 1998.
Interest and fees on loans, on a tax equivalent basis, remained unchanged at
$55.0 million versus the prior year. A 42 basis point decrease in the average
rate earned was offset by a $29.1 million or 4.9% increase in the average
balance.
INTEREST EXPENSE
Interest expense results from incurring interest on interest bearing
liabilities, which primarily include interest bearing deposits, securities sold
under agreements to repurchase, and other borrowed funds. Interest expense is
affected by the volume, composition of interest bearing liabilities, and the
related rates paid thereon. Total interest expense for 1999 was $27.2 million, a
decrease of $2.0 million or 6.7% from the prior year. The decrease in interest
expense is primarily attributable to decreases in the average rate paid on
interest bearing liabilities. The average rate paid on interest bearing
liabilities was 3.8% for 1999, which is a 39 basis point decrease from 1998 and
more than compensated for the $20.7 million or 3.0% increase in the average
balance.
Interest expense on interest bearing demand deposits decreased 8.4% to $4.0
million due primarily to a 35 basis point decrease in the average rate paid in
1999. The decrease in rate offset a $12.4 million or 6.9% increase in the
average balance. Interest expense on savings deposits decreased $322 thousand or
6.6% due to a 36 basis point decrease in the average rate paid, which offset an
$8.0 million or 5.3% growth in average savings deposits. Interest on time
deposits, the largest component of interest expense, totaled $16.5 million for
1999, a $1.4 million or 7.8% decrease from 1998. This decrease was primarily the
result of a 34 basis point decrease in the average rate paid in 1999 compared to
1998. A $5.7 million decrease in the average balance in 1999 also contributed to
the reduction in interest expense.
Interest expense on securities sold under agreements to repurchase and other
borrowed funds increased $114 thousand, which was due primarily to an increase
in the average liability of $6.0 million. The average rate paid on these
liabilities was 4.7% for 1999, a decrease of 4 basis points.
NET INTEREST INCOME
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 table on the following
page 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).
Tax equivalent net interest income was $44.0 million for 1999, an increase of
$1.5 million or 3.5% over 1998. The net interest margin was 4.91% for 1999,
unchanged compared to the prior year. Changes in net interest income and margin
result from the interaction between the volume and composition of earning
assets, the related yields, and the associated cost and composition of interest
bearing liabilities. Accordingly, portfolio size, composition, and the related
yields earned and average rates paid can have a significant impact on net
interest income and margin.
The increase in net interest income is primarily attributable to a $2.0 million
decrease in interest expense. This decrease offset a $465 thousand decline in
interest income and was driven by a 39 basis point decrease in the average rate
paid on interest bearing sources of funds. The most significant reduction in
interest expense was related to interest on time deposits, which decreased $1.4
million or 7.8%. Interest on savings and interest bearing demand deposits
declined 6.6% and 8.4%, respectively.
Tax equivalent net interest spread increased 5 basis points to 4.16% compared to
4.11% in the prior year. The increase is the result of a 34 basis point decrease
in the average rate earned on earning assets and a decrease of 39 basis points
in the average rate paid on interest bearing liabilities.
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
December 31, 1999 1998 1997
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 $163,077 $9,191 5.64% $143,567 $8,598 5.99% $143,162 $8,635 6.03%
Nontaxable 1 83,211 5,499 6.61 77,676 5,189 6.68 66,500 4,553 6.85
Time deposits with banks,
federal funds sold and
securities purchased
under agreements
to resell 30,902 1,446 4.68 54,260 2,942 5.42 47,702 2,592 5.43
Loans 1,2,3 618,860 55,036 8.89 589,714 54,908 9.31 566,033 53,328 9.42
------- ------ ---- ------- ------ ---- ------- ------ ----
Total earning assets 896,050 $71,172 7.94% 865,217 $71,637 8.28% 823,397 $69,108 8.39%
Allowance
for loan losses (9,272) (9,134) (8,871)
------ ------ ------
Total earning assets,
net of allowance
for loan losses 886,778 856,083 814,526
NONEARNING ASSETS
Cash and due from banks 64,464 62,001 58,561
Premises and equipment, net 24,985 24,083 20,538
Other assets 12,821 12,973 12,295
-------- -------- --------
Total assets $989,048 $955,140 $905,920
======== ======== ========
INTEREST BEARING LIABILITIES
Deposits
Interest bearing demand $192,695 $3,977 2.06% $180,265 $4,343 2.41% $172,803 $4,219 2.44%
Savings 158,501 4,557 2.88 150,499 4,879 3.24 141,961 4,469 3.15
Time 322,616 16,527 5.12 328,351 17,916 5.46 321,376 17,225 5.36
Securities sold under
agreements to repurchase 41,741 1,925 4.61 34,788 1,762 5.06 27,424 1,307 4.77
Other borrowed funds 3,634 198 5.45 4,581 247 5.39 3,896 230 5.90
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest bearing
liabilities 719,187 27,184 3.78 698,484 29,147 4.17 667,460 27,450 4.11
------ ---- ------ ---- ------ ----
NONINTEREST BEARING LIABILITIES
Commonwealth of Kentucky
deposits 30,329 28,245 27,214
Other demand deposits 110,299 100,907 90,127
Other liabilities 4,839 7,620 8,270
------- ------- -------
Total liabilities 864,654 835,256 793,071
Shareholders' equity 124,394 119,884 112,849
------- ------- -------
Total liabilities and
shareholders' equity $989,048 $955,140 $905,920
======== ======== ========
Net interest income 43,988 42,490 41,658
TE basis adjustment (2,138) (1,956) (1,748)
------ ------ ------
Net interest income $41,850 $40,534 $39,910
======= ======= =======
Net interest spread 4.16% 4.11% 4.28%
Net interest margin 4.91% 4.91% 5.06%
</TABLE>
1 Income and yield stated at a fully tax equivalent basis, using a 34% tax rate.
2 Loan balances include principal balances on nonaccrual loans.
3 Loan fees included in interest income amounted to $1.8 million, $2.0 million,
and $1.6 million in 1999, 1998, and 1997, respectively.
<PAGE>
The following table is an analysis of the change in net interest income.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAX EQUIVALENT BASIS)
Variance Variance Attributed to Variance Variance Attributed to
(In thousands) 1999/1998 1 Volume Rate 1998/1997 1 Volume Rate
- --------------- ----------- ------ ---- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Taxable investment securities $593 $1,117 $(524) $(37) $23 $(60)
Nontaxable investment securities 2 310 365 (55) 636 751 (115)
Time deposits with banks, federal
funds sold and securities
purchased under agreements
to resell (1,496) (1,135) (361) 350 355 (5)
Loans 2 128 2,657 (2,529) 1,580 2,209 (629)
---- ----- ------ ----- ----- ----
Total interest income (465) 3,004 (3,469) 2,529 3,338 (809)
INTEREST EXPENSE
Interest bearing demand deposits (366) 289 (655) 124 177 (53)
Savings deposits (322) 246 (568) 410 278 132
Time deposits (1,389) (304) (1,085) 691 372 319
Securities sold under agreements
to repurchase 163 330 (167) 455 371 84
Other borrowed funds (49) (52) 3 17 38 (21)
------ --- ------ ----- ----- ---
Total interest expense (1,963) 509 (2,472) 1,697 1,236 461
------ --- ------ ----- ----- ---
Net interest income $1,498 $2,495 $(997) $832 $2,102 $(1,270)
====== ====== ===== ==== ====== =======
Percentage change 100.0% 166.6% (66.6%) 100.0% 252.6% (152.6)%
</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.
NONINTEREST INCOME
Noninterest income increased $83 thousand or 0.7% to $12.4 million for 1999.
Service charges and fees on deposits, the largest component of noninterest
income, increased $66 thousand to $5.2 million. Trust department income
increased $106 thousand or 7.8% to $1.5 million due primarily to an increase in
assets under management. Other service charges, commissions, and fees increased
$57 thousand or 1.5%. Custodial safekeeping fees, the largest component of other
service charges, commissions, and fees increased $185 thousand or 20%. Data
processing fees declined $114 thousand or 7.6% due to a reduction in ATM
authorization fees. Net gains on the sale of investment securities totaled $49
thousand compared to $60 thousand a year earlier. Other noninterest income for
1999 was $470 thousand, a decrease of $21 thousand compared to 1998. Significant
components of the decrease include an increase in losses on the sale of loans of
$53 thousand and an increase in gains on the sale of fixed assets of $94
thousand.
NONINTEREST EXPENSE
Noninterest expense was $32.6 million for 1999, an increase of $371 thousand or
1.2% from 1998. The largest component of noninterest expense is salaries and
employee benefits, which declined $225 thousand or 1.3% to $17.6 million at year
end 1999. The decline in salaries and employee benefits is attributable to a
$299 thousand decrease in noncash compensation related to the Company's
nonqualified stock option plan. As of December 31, 1999, the Company had 443
full time equivalent employees, an increase of 4 from the prior year end.
The Company estimates additional future noncash compensation expense as detailed
in the table below. The amounts are net of tax and unadjusted for future
forfeitures.
Year (In thousands) Amount
- ------------------- ------
2000 $ 633
2001 631
2002 536
2003 297
2004 145
-----
Total $ 2,242
========
Occupancy expense increased $127 thousand or 6.1% in 1999 to $2.2 million
primarily due to an increase in depreciation of banking premises. Equipment
expenses increased $148 thousand or 5.2% to $3.0 million primarily due to
increases in depreciation on furniture, fixtures, and equipment. Increases in
other noninterest expenses of $415 thousand were partially offset by a decrease
in data processing expense of $94 thousand. The decrease in data processing
expense is primarily attributed to decreases in credit card processing expenses
of $77 thousand.
INCOME TAX
Income tax expense for 1999 was $4.9 million, a decrease of $384 thousand or
7.3% from 1998. The effective tax rates were 26.0% and 27.1% for the years ended
1999 and 1998, respectively. The reduction in the effective tax rate for 1999 is
primarily due to an increase in tax exempt income and the realization of
investment tax credits through participation in low income housing projects.
FINANCIAL CONDITION
On December 31, 1999 assets were $1.0 billion, an increase of $47.4 million or
4.8% from the prior year end. The increase in assets is primarily due to the
relationship between the Company's principal subsidiary, 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. Farmers Bank received a significant deposit from the
Commonwealth at year end 1999 that accounts for most of the increase in total
assets. On an average basis, assets increased $33.9 million or 3.6% to $989
million for 1999. Earning assets, primarily loans and investment securities,
averaged $896 million, an increase of $30.8 million or 3.6%.
LOANS
As of December 31, 1999, loans, net of unearned income, totaled $643 million, an
increase of $38.5 million or 6.4% from $605 million in the prior year. Real
estate mortgage loans increased $38.3 million or 10.9% in the comparison. This
increase was led by additional nonfarm, nonresidential loans of $21.2 million
and residential first mortgage loans of $13.6 million. Installment loans
decreased $4.2 million or 5.2%. Lease financing increased $2.2 million or 7.4%
and commercial and real estate construction loans increased $2.1 million or
1.5%.
The composition of the loan portfolio is summarized in the table below.
<TABLE>
<CAPTION>
Year Ended December 31, (In thousands) 1999 % 1998 % 1997 % 1996 % 1995 %
- -------------------------------------- ---- - ---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and agriculture $105,064 16.3% $116,625 19.3% $114,377 19.5% $120,256 21.5% $114,412 21.1%
Real estate - construction 38,471 6.0 24,770 4.1 26,299 4.5 27,098 4.9 26,380 4.9
Real estate - mortgage 390,225 60.7 351,879 58.2 334,612 57.1 305,229 54.6 292,913 53.8
Installment 77,051 12.0 81,254 13.4 83,368 14.2 80,741 14.5 91,199 16.8
Lease financing 32,379 5.0 30,155 5.0 27,284 4.7 24,925 4.5 18,276 3.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total $643,190 100.0% $604,683 100.0% $585,940 100.0% $558,249 100.0% $543,180 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The following table presents commercial, financial, and agricultural loans and
real estate construction loans outstanding at December 31, 1999, which, based on
remaining scheduled repayments of principal, are due in the periods indicated.
<TABLE>
<CAPTION>
LOAN MATURITIES
Within After One But After
(In thousands) One Year Within Five Years Five Years Total
- -------------- -------- ----------------- ---------- -----
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $76,294 $25,640 $3,130 $105,064
Real estate - construction 35,940 2,513 18 38,471
-------- ------- ------ --------
Total $112,234 $28,153 $3,148 $143,535
======== ======= ====== ========
</TABLE>
The table below presents commercial, financial, and agricultural loans and real
estate construction loans outstanding at December 31, 1999, which are due after
one year, classified according to sensitivity to changes in interest rates.
INTEREST SENSITIVITY
Fixed Variable
(In thousands) Rate Rate
- -------------- ---- ----
Due after one but within five years $19,259 $8,894
Due after five years 3,148
------- ------
Total $22,407 $8,894
======= ======
ASSET QUALITY
The Company maintains policies and procedures to ensure that the granting of
credit is done in a sound and consistent manner. This includes policies on a
Company wide basis that require certain minimum standards to be maintained.
However, the policies also permit the individual subsidiary companies authority
to adopt standards that are no less stringent than those included in the Company
wide policies. Credit decisions are made at the subsidiary bank level under the
guidelines established by policy. The Company's internal audit department
performs a loan review at each subsidiary bank during the year. This loan review
evaluates loan administration, credit quality, documentation, compliance with
Company loan standards, and the adequacy of the allowance for loan losses on a
consolidated and subsidiary basis.
The provision for loan losses represents charges made to earnings to maintain an
allowance for loan losses at an adequate level based on credit losses
specifically identified in the loan portfolio, as well as management's best
estimate of probable loan losses inherent in the remainder of the portfolio at
the balance sheet date. Many factors are considered when establishing an
adequate allowance. Those factors include, but are not limited to the following:
an assessment of the financial condition of individual borrowers, a
determination of the value and adequacy of underlying collateral, a review of
historical loss experience, the condition of the local economy, an analysis of
the levels and trends of the loan composition, and a review of delinquent and
classified loans. Actual losses could differ significantly from the amounts
estimated by management.
In addition, borrowers may experience difficulty in periods of economic
deterioration, and the level of nonperforming loans, charge offs, and
delinquencies could rise and require additional increases in the provision.
Also, regulatory agencies, as an integral part of their examinations,
periodically review the allowance for loan losses. These reviews could result in
additional adjustments to the provision based upon their judgments about
relevant information available during an examination.
The provision for loan losses increased $1.7 million in 1999 compared to 1998.
$1.0 million of the increase in provision relates to the deterioration of a
single commercial loan credit in the fourth quarter of 1999. The Company had net
charge offs of $2.3 million in 1999, of which $1.0 million relates to the
previously mentioned commercial credit. The allowance for loan losses was 1.50%
of net loans at year end 1999 and 1998. Management continues to emphasize
collection efforts and evaluation of risks within the portfolio. The composition
of the Company's loan portfolio continues to be diverse with no significant
concentration of credit to any particular industry or individual.
The table below summarizes the loan loss experience for the past five years.
<TABLE>
<CAPTION>
Year Ended December 31, (In thousands) 1999 1998 1997 1996 1995
- -------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE OF ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF PERIOD $9,048 $9,114 $ 8,741 $ 8,472 $ 8,889
Loans charged off:
Commercial, financial, and agricultural 1,590 716 720 1,609 2,390
Real estate 79 386 465 920 118
Installment loans to individuals 1,209 1,061 1,133 1,862 2,376
Lease financing 64 109 433 18
----- ----- ----- ----- -----
Total loans charged off 2,942 2,272 2,751 4,409 4,884
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 249 383 437 144 192
Real estate 172 345 527 38 146
Installment loans to individuals 267 341 330 334 402
Lease financing 2 3
----- ----- ----- ----- -----
Total recoveries 690 1,072 1,294 516 740
----- ----- ----- ----- -----
Net loans charged off 2,252 1,200 1,457 3,893 4,144
Additions to allowance charged
to expense 2,863 1,134 1,830 4,162 3,727
----- ----- ----- ----- -----
Balance at end of period $9,659 $9,048 $9,114 $8,741 $ 8,472
====== ====== ====== ====== ========
Average loans
net of unearned income $618,860 $589,714 $566,033 $546,040 $540,632
Ratio of net charge offs
during period to average loans, net
of unearned income .36% .20% .26% .71% .77%
</TABLE>
The following table presents an estimate of the allocation of the allowance for
loan losses by type for the date indicated. Although specific allocations exist,
the entire allowance is available to absorb losses in any particular category.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
Year Ended December 31, (In thousands) 1999 1998 1997 1996 1995
- -------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $3,649 $2,536 $2,942 $3,806 $4,138
Real estate 3,807 4,637 4,324 2,974 1,928
Installment loans to individuals 1,829 1,450 1,417 1,304 2,176
Lease financing 374 425 431 657 230
------ ------ ------ ------ ------
Total $9,659 $9,048 $9,114 $8,741 $8,472
====== ====== ====== ====== ======
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets for the Company include nonperforming loans, other real
estate owned, and other foreclosed assets. Nonperforming loans consist of
nonaccrual loans, loans past due ninety days or more on which interest is still
accruing, and restructured loans. Generally, the accrual of interest on 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 90 days or
more, unless such loan is well secured and in the process of collection.
Total nonperforming loans increased $1.9 million to $4.9 million at year end
1999. The increase is primarily attributed to an increase in nonaccrual loans of
$1.5 million. Included in this amount is $418 thousand attributed to the
commercial loan credit discussed under the caption titled "Asset Quality".
Nonperforming loans represent 0.76% of net loans at year end 1999 compared to
0.48% for 1998. The $1.9 million increase in nonperforming loans was partially
offset by a $911 thousand decrease in other repossessed and foreclosed assets.
Information regarding nonperforming loans and assets is presented in the table
below.
<TABLE>
<CAPTION>
Year Ended December 31, (In thousands) 1999 1998 1997 1996 1995
- -------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans accounted for on nonaccrual basis $2,767 $1,286 $3,137 $2,938 $2,897
Loans past due 90 days or more 2,102 1,645 2,196 1,822 1,713
Restructured loans 1,285 1,814 1,571
----- ----- ----- ----- -----
Total nonperforming loans 4,869 2,931 6,618 6,574 6,181
Other real estate owned 734 1,671 29 769
Other foreclosed assets 95 69 47 7
----- ----- ----- ----- -----
Total nonperforming assets $5,698 $4,671 $6,647 $6,621 $6,957
====== ====== ====== ====== ======
</TABLE>
TEMPORARY INVESTMENTS
Federal funds sold and securities purchased under agreements to resell are the
primary components of temporary investments. The Company uses these funds in the
management of liquidity and interest rate sensitivity. In 1999, temporary
investments averaged $30.9 million, a decrease of $23.4 million or 43.0% from
1998. 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.
Government agency securities, mortgage-backed securities, and tax-exempt
securities of states and political subdivisions. Total investment securities
were $230 million on December 31, 1999, a decrease of $33.0 million or 12.6%
from year end 1998.
The funds made available from maturing or called bonds have been redirected
primarily to fund new loan growth as needed. The purchase of nontaxable
obligations of states and political subdivisions is 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 and held to maturity securities were $168 million and $61.9
million at year end 1999, a decrease of $23.5 million and $9.5 million,
respectively. Total investment securities averaged $246 million, an increase of
$25.0 million or 11.3% from year end 1998. The Company realized $49 thousand in
net gains on the sale of available for sale investment securities during 1999, a
decrease of $11 thousand versus the prior year. The net unrealized loss on
available for sale securities, included as a component of shareholders' equity,
was $1.9 million on December 31, 1999.
The following table summarizes the carrying values of investment securities on
December 31, 1999, 1998, and 1997. 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, 1999 1998 1997
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>
U.S. Treasury securities $3,748 $22,379 $25,789 $1,000
Obligations of U.S.
Government agencies 75,997 $2,600 86,998 $2,600 59,053 16,149
Obligations of states and political
subdivisions 21,152 58,562 17,807 65,891 69,662
Mortgage-backed securities 50,889 734 45,520 2,878 30,543 8,875
Corporate debt 11,969 14,915 184
Equity securities 4,189 3,868 3,507
-------- ------- -------- ------- -------- -------
Total $167,944 $61,896 $191,487 $71,369 $119,076 $95,686
======== ======= ======== ======= ======== =======
</TABLE>
The following table presents an analysis of the contractual maturity
distribution and tax equivalent weighted average interest rates of investment
securities at December 31, 1999. For purposes of this analysis, available for
sale securities are stated at fair value and held to maturity securities are
stated at amortized cost. Equity securities in the available for sale portfolio
consist primarily of Federal Home Loan Bank stock, which has no stated maturity
and are not included in the maturity schedule that follows.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
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 $2,503 5.60% $1,245 5.41%
Obligations of U.S.
Government agencies 39,414 5.31 21,635 5.86 $9,980 6.10% $4,968 6.59%
Obligations of states and
political subdivisions 3,940 6.09 14,645 6.27 2,567 6.76
Mortgage-backed securities 926 6.53 38,997 5.98 10,966 6.33
Corporate debt 3,071 5.54 8,898 5.90
------- ---- ------- ---- ------- ---- ------- ----
Total $44,988 5.34% $36,644 5.89% $63,622 6.06% $18,501 6.46%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
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>
Obligations of U.S.
Government agencies $2,500 5.66% $100 6.04%
Obligations of states and
political subdivisions 9,280 6.48 27,780 6.72 $21,083 7.09% $419 7.43%
Mortgage-backed securities 5 6.50 729 7.11
------- ---- ------- ---- ------- ---- ------- ----
Total $11,780 6.31% $27,885 6.72% $21,812 7.09% $419 7.43%
======= ==== ======= ==== ======= ==== ==== ====
</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 states and political subdivisions are computed on a tax
equivalent basis using a 34% tax rate.
DEPOSITS
The Company's primary source of funding for its lending and investment
activities result from its customer deposits, which consist of noninterest and
interest bearing demand, savings, and time deposits. On December 31, 1999,
deposits totaled $862 million, an increase of $32.2 million or 3.9% from year
end 1998. A significant deposit received from the Commonwealth of Kentucky at
year end 1999 contributed to the increase in deposits. Deposits averaged $814
million in 1999, an increase of $26.2 million or 3.3%.
During 1999 total average interest bearing deposits increased $14.7 million or
2.2% to $674 million while average noninterest bearing deposits increased $11.5
million or 8.9% to $141 million.
Increases in average interest bearing deposits were made in interest bearing
demand and savings deposits. Interest bearing demand deposits increased $12.4
million or 6.9% to $193 million and savings deposits increased $8.0 million or
5.3% to $159 million. Average time deposits decreased $5.7 million or 1.7%.
A summary of average balances and rates paid on deposits follows.
<TABLE>
<CAPTION>
1999 1998 1997
Average Average Average Average Average Average
(In thousands) Balance Rate Balance Rate Balance Rate
- -------------- ------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $140,628 0.00% $129,152 0.00% $117,341 0.00%
Interest bearing demand 192,695 2.06 180,265 2.41 172,803 2.44
Savings 158,501 2.88 150,499 3.24 141,961 3.15
Time 322,616 5.12 328,351 5.46 321,376 5.36
------- ---- ------- ---- ------- ----
Total $814,440 3.08% $788,267 3.44% $753,481 3.44%
======== ==== ======== ==== ======== ====
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31, 1999
are summarized as follows.
(In thousands) Amount
-------------- ------
3 months or less $18,026
Over 3 through 6 months 13,891
Over 6 through 12 months 12,620
Over 12 months 18,146
------
Total $62,683
=======
Short-term Borrowings
Short-term borrowings are made up primarily of securities sold under agreements
to repurchase with balances of $41.2 million, $26.3 million, and $48.3 million
in 1999, 1998, and 1997, respectively. Such borrowings are generally on an
overnight basis. Other short-term borrowings consist primarily of demand notes
issued to the U.S. Treasury under the treasury tax and loan note option account.
A summary of short-term borrowings is as follows.
(In thousands) 1999 1998 1997
-------------- ---- ---- ----
Amount outstanding at year end $41,971 $26,784 $50,602
Maximum outstanding at any month end 101,359 51,095 50,602
Average outstanding 42,442 35,807 28,117
Weighted average rate during the year 4.61% 5.05% 4.75%
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.
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. The Company's success is largely dependent upon its ability to manage
this risk. Interest rate risk is defined as the exposure of the Company's net
interest income to adverse movements in interest rates. Although the Company
manages other risks, such as credit and liquidity risk, management considers
interest rate risk to be its most significant risk, which could potentially have
the largest and a material effect on the Company's financial condition and
results of operations. A sudden and substantial change in interest rates may
adversely impact the Company's earnings to the extent that the interest rates
earned on assets and paid on liabilities do not change at the same speed, to the
same extent, or on the same basis. Other events that could have an adverse
impact on the Company's performance include changes in general economic and
financial conditions, general movements in market interest rates, and changes in
consumer preferences. 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 Company has established a Corporate Asset and Liability Management Committee
(ALCO) to provide guidance and support to each of the ALCO's of the subsidiary
banks. ALCO is also responsible for monitoring risks on a Company wide basis.
ALCO has established minimum standards in its asset and liability management
policy that each subsidiary bank must adopt. However, the subsidiary banks are
permitted to deviate from these standards so long as the deviation is no less
stringent that that of the Corporate policy.
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 contractual maturity dates.
<TABLE>
<CAPTION>
PRINCIPAL CASH FLOWS AND RELATED WEIGHTED AVERAGE INTEREST RATES
Fair
December 31, (Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total Value
- ----------------------------------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Interest bearing due from banks $11,594 $11,594 $11,594
Average interest rate 2.89% 2.89%
Federal funds sold and securities
purchased under agreements to
resell 40,904 40,904 40,904
Average interest rate 4.29 4.29
Investment securities
Fixed rate $56,767 $23,792 $15,321 $13,658 $11,137 $95,100 $215,775 $215,515
Average interest rate 5.15% 4.98% 5.30% 5.30% 5.32% 5.68% 5.39%
Variable rate 14,065 14,065 14,065
Average interest rate 5.68 5.68
Loans, net
Fixed rate $193,851 $60,270 $49,534 $32,212 $33,824 $23,642 $393,333 $389,463
Average interest rate 9.02% 8.94% 8.68% 8.58% 8.11% 8.00% 8.79%
Variable rate 187,615 15,524 20,693 15,827 9,668 530 249,857 249,857
Average interest rate 8.78 8.21 8.08 8.43 8.16 9.23 8.64
RATE SENSITIVE LIABILITIES
Noninterest bearing checking $176,315 $176,315 $176,315
Savings and interest bearing checking 369,956 369,956 369,956
Average interest rate 2.05% 2.05%
Time deposits 192,198 $59,783 $49,302 $6,940 $4,787 $2,939 315,949 316,479
Average interest rate 4.92 5.35% 5.79% 5.75% 5.65% 5.69% 5.17
Fixed interest rate borrowings 18,997 1,496 501 245 192 766 22,197 22,035
Average interest rate 4.31 6.32 5.51 6.97 7.75 7.75 4.65
Variable interest rate borrowings 23,442 23,442 23,442
Average interest rate 4.14 4.14
</TABLE>
LIQUIDITY
The liquidity of the Parent Company is primarily affected by the receipt of
dividends from its subsidiary banks (see footnote 16 in the notes to the audited
consolidated financial statements) and cash balances maintained. Management
expects that in the aggregate, its subsidiary banks will continue to have the
ability to dividend adequate funds to the Parent 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
that can be used for liquidity purposes. Those sources of funds include the
subsidiary banks' core deposits, consisting of both business and nonbusiness
deposits; cash flow generated by repayment of loan principal and interest; and
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 cash equivalents and available for sale
investment securities. At December 31, 1999, such assets totaled $303 million.
For the year ended December 31, 1999, cash and due from banks totaled $82.9
million. This represents an increase of $44.5 million compared to the prior
year. The increase in cash and due from banks in 1999 results primarily from a
significant cash deposit received on December 31, 1999 from the Commonwealth of
Kentucky and a planned strategy of maintaining additional cash on hand for
potential customer deposit withdrawals relating to the Year 2000. Net cash
provided by operating activities was $23.3 million in 1999, an increase of $10.8
million over the prior year. Net cash used in investing activities decreased
$54.2 million, primarily as a result of decreased purchases of investment
securities. Net cash provided by financing activities totaled $36.2 million for
the year 1999. This is primarily the result of a net increase in deposits of
$32.2 million.
CAPITAL RESOURCES
Shareholders' equity was $125 million on December 31, 1999, increasing $1.3
million or 1.0% from year end 1998. During 1999 the Company purchased 90
thousand shares of its outstanding common stock for a total cost of $3.2
million. Dividends of $8.5 million or $1.13 per share were declared during the
year. The Company issued 8 thousand shares of common stock during 1999 pursuant
to its nonqualified employee stock option plan.
Consistent with the objective of operating a sound financial organization, the
Company's goal is to maintain capital ratios well above the regulatory minimum
requirements. The Company's capital ratios as of December 31, 1999, 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 18.63% 4.00% 6.00%
Total risk based 19.89 8.00 10.00
Leverage 12.77 4.00 5.00
The capital ratios of each subsidiary bank were in excess of the applicable
minimum regulatory capital ratio requirements at December 31, 1999.
The table below is an analysis of dividend payout ratios and equity to asset
ratios for the previous five years.
December 31, 1999 1998 1997 1996 1995
- ------------ ---- ---- ---- ---- ----
Percentage of dividends declared
to net income 60.66% 53.02% 45.90% 45.21% 50.24%
Percentage of average shareholders'
equity to average total assets 12.58 12.55 12.46 11.94 11.81
SHAREHOLDER INFORMATION
As of January 1, 2000, there were 867 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 lists the stock prices and dividends declared for 1999 and 1998.
STOCK PRICES
Dividends
High Low Declared
---- --- --------
1999
Fourth Quarter $36.000 $30.000 $0.29
Third Quarter 43.500 34.500 0.28
Second Quarter 36.625 32.125 0.28
First Quarter 39.375 30.875 0.28
1998
Fourth Quarter $37.500 $29.000 $0.28
Third Quarter 52.000 31.000 0.24
Second Quarter 50.500 35.125 0.24
First Quarter 35.500 28.500 0.24
Dividends declared per share increased $0.13 or 13.0% and $0.145 or 17.0% for
the years 1999 and 1998, respectively.
YEAR 2000 COMPLIANCE
During 1999 the Company completed its efforts of preparing for the January 1,
2000 date change. This process included the five phases as prescribed by
regulatory guidelines. As of the date of this report, the Company has not
experienced any system failures, miscalculations, or any other disruptions of
operations related to the Year 2000 date change. Although considered unlikely,
unanticipated disruptions could still occur as a result of noncompliant third
parties or other factors that are beyond the control of the Company. The Company
will continue to monitor its systems throughout the coming year.
EFFECT OF IMPLEMENTING RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133. This Statement defers the effective date of SFAS No. 133,
ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES until fiscal years beginning
after June 15, 2000. The Company expects to adopt SFAS No. 133, as amended by
SFAS No. 137, effective January 1, 2001. The Company does not expect the
implementation of this Statement to have a material effect on the consolidated
financial statements.
1998 COMPARED WITH 1997
Net income was $14.2 million in 1998 compared to $14.1 million in 1997, an
increase of $144 thousand. Diluted net income per share increased from $1.86 to
$1.89. Net income was relatively unchanged primarily due to noncash compensation
expense of $918 thousand, net of tax, related to the adoption of the Company's
nonqualified stock option plan. The increase in diluted net income per share was
primarily the result of the Company's plan to purchase its own common shares
from the open market. The Company purchased 53 thousand shares under the plan,
which offset the effect of 11 thousand shares issued pursuant to stock options
exercised. This combination resulted in a reduction in the average number of
common shares outstanding by 17 thousand. In 1998, the return on average assets
was 1.49% and the return on average equity was 11.88% compared to 1.56% and
12.50%, respectively, for 1997.
Total interest income on a tax equivalent basis was $71.6 million, an increase
of $2.5 million or 3.7% from 1997. A $41.8 million increase in average earning
assets offset an 11 basis point decrease in the average rate earned on earning
assets. Average loans, which increased $23.7 million or 4.2% to $590 million,
represented the largest increase in average earning assets.
Total interest expense was $29.1 million, an increase of $1.7 million or 6.2%
from 1997. The increase was primarily due to increases in the average balance of
each category of interest bearing liabilities. The average rate paid on time
deposits increased 10 basis points, which was also a significant contributing
factor.
The spread between rates earned and paid was 4.11% in 1998, a 17 basis point
decrease from 1997. The decrease is primarily due to an 11 basis point decrease
in the yield earned on loans and increases in the overall costs of funding by 6
basis points. The net interest margin was 4.91% in 1998, a decrease of 15 basis
points from 1997.
Noninterest income increased $363 thousand or 3.0% to $12.3 million for 1998.
Service charges and fees on deposits, the largest component of noninterest
income, decreased $171 thousand to $5.2 million. These declines were offset by
increases in trust department income and other service charges, commissions, and
fees. Trust department income increased $223 thousand to $1.4 million due
primarily to an increase in assets under management. Other service charges,
commissions, and fees, led by a $148 thousand increase in custodial safekeeping
fees, increased $395 thousand to $3.8 million. Net gains on the sale of
investment securities, which were $0 in 1997, totaled $60 thousand in 1998.
Other noninterest income for 1998 was $2.0 million, a decrease of $144 thousand.
Noninterest expense was $32.2 million for 1998, an increase of $2.1 million or
6.9% over 1997. The increase is primarily the result of a $1.6 million or 10.2%
increase in salaries and employee benefits. Included in the increase is $1.4
million in noncash compensation related to the Company's nonqualified stock
option plan. Excluding the noncash compensation for 1998, salaries and employee
benefits increased $232 thousand or 1.4%.
Income tax expense for 1998 was $5.3 million, a decrease of $535 thousand from
$5.8 million in 1997. The effective tax rates were 27.1% and 29.2% for the years
ended 1998 and 1997, respectively. The reduction in the effective tax rate for
1998 is primarily due to an increase in tax exempt income and the realization of
investment tax credits through participation in low income housing projects.
<PAGE>
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Farmers Capital Bank Corporation has the responsibility for
preparing the accompanying consolidated financial statements and for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles. The consolidated financial statements
include amounts that are based on management's best estimates and judgments.
Management also prepared other information in the annual report and is
responsible for its accuracy and consistency with the financial statements.
Farmers Capital Bank Corporation's 1999 consolidated financial statements have
been audited by KPMG LLP independent accountants. Management has made available
to KPMG LLP all financial records and related data, as well as the minutes of
Boards of Directors' meetings. Management believes that all representations made
to KPMG LLP during the audit were valid and appropriate.
Management of Farmers Capital Bank Corporation has established and maintains a
system of internal control that provides reasonable assurance as to the
integrity and reliability of the financial statements, the protection of assets
from unauthorized use or disposition, and the prevention and detection of
fraudulent financial reporting. The system of internal control provides for
appropriate division of responsibility and is documented by written policies and
procedures that are communicated to employees with significant roles in the
financial reporting process and updated as necessary. Management continually
monitors the system of internal control for compliance.
Farmers Capital Bank Corporation maintains an internal auditing program that
independently assesses the effectiveness of the internal controls and recommends
possible improvements thereto. Management has considered the recommendations of
the internal audit staff and KPMG LLP and has taken actions that we believe
respond appropriately to these recommendations. Management believes that, as of
December 31, 1999, the system of internal control was adequate to accomplish the
objectives discussed herein.
/s/Charles S. Boyd /s/C Douglas Carpenter
- ------------------ ----------------------
Charles S. Boyd C. Douglas Carpenter
President and CEO Vice President and CFO
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Farmers Capital Bank Corporation
We have audited the accompanying consolidated balance sheets of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. 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 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 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/KPMG LLP
Louisville, Kentucky
January 17, 2000
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, (In thousands, except share data) 1999 1998
- ---------------------------------------------- ---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $82,862 $38,385
Interest bearing deposits in other banks 11,594 1,914
Federal funds sold and securities purchased under
agreements to resell 40,904 51,535
------- ------
Total cash and cash equivalents 135,360 91,834
Investment securities:
Available for sale, amortized cost of $170,885 (1999) and $190,928 (1998) 167,944 191,487
Held to maturity, market value of $61,636 (1999) and $73,167 (1998) 61,896 71,369
------- -------
Total investment securities 229,840 262,856
Loans, net of unearned income 643,190 604,683
Allowance for loan losses (9,659) (9,048)
------- -------
Loans, net 633,531 595,635
Premises and equipment, net 24,409 24,861
Other assets 16,647 17,152
---------- --------
Total assets $1,039,787 $992,338
========== ========
LIABILITIES
Deposits:
Noninterest bearing $176,315 $123,741
Interest bearing 685,905 706,260
------- -------
Total deposits 862,220 830,001
Securities sold under agreements to repurchase 41,200 26,324
Other borrowed funds 4,439 3,926
Dividends payable 2,162 2,113
Other liabilities 4,660 6,135
------- -------
Total liabilities 914,681 868,499
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, par value $.125 per share; 9,608,000 shares authorized; 7,437,792
and 7,520,465 shares issued and
outstanding at December 31, 1999 and 1998, respectively 930 940
Capital surplus 11,686 10,520
Retained earnings 114,431 112,010
Accumulated other comprehensive (loss) income (1,941) 369
------- -------
Total shareholders' equity 125,106 123,839
---------- --------
Total liabilities and shareholders' equity $1,039,787 $992,338
========== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the years ended December 31, 1999 1998 1997
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $54,616 $54,556 $52,991
Interest on investment securities:
Taxable 9,191 8,598 8,635
Nontaxable 3,781 3,585 3,142
Interest on deposits in other banks 79 154 114
Interest on federal funds sold and securities
purchased under agreements to resell 1,367 2,788 2,478
------ ------ ------
Total interest income 69,034 69,681 67,360
INTEREST EXPENSE
Interest on deposits 25,061 27,138 25,913
Interest on other borrowed funds 2,123 2,009 1,537
------ ------ ------
Total interest expense 27,184 29,147 27,450
------ ------ ------
Net interest income 41,850 40,534 39,910
Provision for loan losses 2,863 1,134 1,830
------ ------ ------
Net interest income after provision
for loan losses 38,987 39,400 38,080
NONINTEREST INCOME
Service charges and fees on deposits 5,220 5,154 5,325
Other service charges, commissions, and fees 3,847 3,790 3,395
Data processing income 1,380 1,494 1,458
Trust income 1,466 1,360 1,137
Investment securities gains, net 49 60
Other 470 491 671
------ ------ ------
Total noninterest income 12,432 12,349 11,986
NONINTEREST EXPENSE
Salaries and employee benefits 17,588 17,813 16,168
Occupancy expenses, net 2,207 2,080 1,950
Equipment expenses 2,993 2,845 2,732
Data processing expense 383 477 528
Bank franchise tax 1,101 1,005 1,070
Other 8,314 7,995 7,693
------ ------ ------
Total noninterest expense 32,586 32,215 30,141
------ ------ ------
Income before income taxes 18,833 19,534 19,925
Income tax expense 4,903 5,287 5,822
------ ------ ------
Net income $13,930 $14,247 $14,103
======= ======= =======
NET INCOME PER COMMON SHARE
Basic and diluted $1.86 $1.89 $1.86
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted 7,478 7,555 7,572
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the years ended December 31, 1999 1998 1997
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
NET INCOME $13,930 $14,247 $14,103
Other comprehensive (loss) income:
Unrealized holding (loss) gain on available for sale
securities arising during the period, net of tax
of $1,153, $172, and $238, respectively (2,239) 334 462
Reclassification adjustment for prior period
unrealized gain recognized during current period,
net of tax of $71 and $33 in 1999 and 1998 (71) (65)
------- ------- -------
Other comprehensive (loss) income (2,310) 269 462
------- ------- -------
Comprehensive income $11,620 $14,516 $14,565
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
(In thousands, except per share data) Other Total
For the years ended Common Stock Capital Retained Comprehensive Shareholders'
December 31, 1999, 1998, and 1997 Shares Amount Surplus Earnings (Loss) Income Equity
- --------------------------------- ------ ------ ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 7,594 $949 $8,931 $100,078 $(362) $109,596
Net income 14,103 14,103
Other comprehensive income 462 462
Cash dividends declared, $.855 per share (6,473) (6,473)
Purchase of common stock (32) (4) (37) (603) (644)
----- --- ----- ------- --- -------
Balance at December 31, 1997 7,562 945 8,894 107,105 100 117,044
Net income 14,247 14,247
Other comprehensive income 269 269
Cash dividends declared, $1.00 per share (7,554) (7,554)
Purchase of common stock (53) (6) (62) (1,788) (1,856)
Stock options exercised 11 1 275 276
Noncash compensation expense attributed
to stock option grants 1,413 1,413
----- --- ----- ------- --- -------
Balance at December 31, 1998 7,520 940 10,520 112,010 369 123,839
Net income 13,930 13,930
Other comprehensive loss (2,310) (2,310)
Cash dividends declared, $1.13 per share (8,450) (8,450)
Purchase of common stock (90) (11) (107) (3,059) (3,177)
Stock options exercised 8 1 204 205
Noncash compensation expense attributed
to stock option grants 1,069 1,069
----- --- ------ ------- ------ -------
Balance at December 31, 1999 7,438 $930 $11,686 $114,431 $(1,941) $125,106
===== ==== ======= ======== ======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (In thousands) 1999 1998 1997
- ----------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $13,930 $14,247 $14,103
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,951 2,757 2,587
Net amortization of investment security
premiums and discounts:
Available for sale (196) (135) (84)
Held to maturity 25 68 77
Provision for loan losses 2,863 1,134 1,830
Noncash compensation expense 1,069 1,413
Mortgage loans originated for sale (10,016) (18,351) (9,080)
Proceeds from sale of mortgage loans 13,030 15,104 9,017
Deferred income tax (benefit) expense (324) (131) 633
Loss (gain) on sale of mortgage loans 46 (7) (19)
(Gain) loss on sale of fixed assets (83) 11 (8)
Gain on sale of available for sale investment securities (49) (60)
(Increase) decrease in accrued interest receivable (130) (405) 324
Decrease (increase) in other assets 936 (3,007) (3,523)
(Decrease) increase in accrued interest payable (173) 29 (248)
Decrease in other liabilities (610) (177) (749)
------ ------ ------
Net cash provided by operating activities 23,269 12,490 14,860
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities:
Available for sale 162,755 135,899 118,918
Held to maturity 9,448 30,899 33,767
Proceeds from sale of available for sale investment securities 13,396 25,673
Purchases of investment securities:
Available for sale (155,863) (233,379) (127,920)
Held to maturity (6,650) (17,921)
Loans originated for investment, net of principal collected (43,819) (16,689) (29,066)
Purchases of premises and equipment (2,257) (5,911) (4,094)
Proceeds from sale of equipment 362 22 154
------ ------ ------
Net cash used in investing activities (15,978) (70,136) (26,162)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 32,219 (4,975) 48,666
Dividends paid (8,401) (7,256) (6,216)
Purchase of common stock (3,177) (1,856) (644)
Stock options exercised 205 232
Net increase (decrease) in other borrowed funds 15,389 (23,405) 33,490
------ ------ ------
Net cash provided by (used in) financing activities 36,235 (37,260) 75,296
------ ------ ------
Net increase (decrease) in cash and cash equivalents 43,526 (94,906) 63,994
Cash and cash equivalents at beginning of year 91,834 186,740 122,746
------ ------- -------
Cash and cash equivalents at end of year $135,360 $91,834 $186,740
======== ======= ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $27,357 $29,118 $27,698
Income taxes 6,025 5,185 5,649
Cash dividend declared and unpaid 2,162 2,113 1,815
See accompanying notes to consolidated financial statements.
</TABLE>
<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 intercompany transactions and accounts have been eliminated
in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities 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 1999
presentation. These reclassifications do not affect net income or
shareholders' equity as previously reported.
SEGMENT INFORMATION
The Company provides a broad range of financial services to individuals,
corporations, and others through its 23 banking locations throughout
Central Kentucky. These services primarily include the activities of
lending and leasing, receiving deposits, providing cash management
services, safe deposit box rental, and trust activities. Operations are
managed and financial performance is evaluated at the subsidiary level. The
Company's chief decision makers monitor the results of the various banking
products and services of its subsidiaries. Accordingly, all of the
Company's operations are considered by management to be aggregated in one
reportable operating segment.
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
Investments in debt and 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 in other
comprehensive income 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. 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 ("SFAS") No. 114, ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN, as amended by SFAS No. 118, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION. SFAS No. 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
No. 114 and SFAS No. 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 and the Federal National Mortgage
Association, 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
$182 thousand, or less than 0.5% of net loans at December 31, 1999.
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,
1999, 1998, and 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings to
maintain an allowance for loan losses at an adequate level based on credit
losses specifically identified in the loan portfolio, as well as
management's best estimate of probable loan losses inherent in the
remainder of the portfolio at the balance sheet date. Many factors are
considered when establishing an adequate allowance. Those factors include,
but are not limited to the following: an assessment of the financial
condition of individual borrowers, a determination of the value and
adequacy of underlying collateral, a review of historical loss experience,
the condition of the local economy, an analysis of the levels and trends of
the loan composition, and a review of delinquent and classified loans.
Actual losses could differ significantly from the amounts estimated by
management.
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.
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
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.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. Comprehensive income is
defined as the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. For the Company, this includes net income and net
unrealized gains and losses on available for sale investment securities.
This Statement requires only additional disclosures in the consolidated
financial statements; it does not affect the Company's financial position
or results of operations. Prior to the adoption of SFAS No. 130, net
unrealized gains and losses were reported as a separate component of
shareholders' equity. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
<PAGE>
2. INVESTMENT SECURITIES
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1999. The summary is divided into available
for sale and held to maturity securities.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1999 (In thousands) Cost Gains Losses Value
- -------------------------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $3,759 $11 $3,748
Obligations of U.S. Government agencies 76,935 938 75,997
Obligations of states and political subdivisions 22,040 $6 894 21,152
Mortgage-backed securities 51,710 5 826 50,889
Corporate debt 12,252 283 11,969
Equity securities 4,189 4,189
-------- --- ------ --------
Total securities - available for sale $170,885 $11 $2,952 $167,944
======== === ====== ========
HELD TO MATURITY
Obligations of U.S. Government agencies $2,600 $13 $2,587
Obligations of states and political subdivisions 58,562 $192 448 58,306
Mortgage-backed securities 734 14 5 743
------- ---- ---- -------
Total securities - held to maturity $61,896 $206 $466 $61,636
======= ==== ==== =======
</TABLE>
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1998.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1998 (In thousands) Cost Gains Losses Value
- -------------------------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $22,277 $102 $22,379
Obligations of U.S. Government agencies 86,927 181 $110 86,998
Obligations of states and political subdivisions 17,624 217 34 17,807
Mortgage-backed securities 45,340 231 51 45,520
Corporate debt 14,892 90 67 14,915
Equity securities 3,868 3,868
-------- ---- ---- --------
Total securities - available for sale $190,928 $821 $262 $191,487
======== ==== ==== ========
HELD TO MATURITY
Obligations of U.S. Government agencies $2,600 $1 $9 $2,592
Obligations of states and political subdivisions 65,891 1,758 9 67,640
Mortgage-backed securities 2,878 60 3 2,935
------- ------ --- -------
Total securities - held to maturity $71,369 $1,819 $21 $73,167
======= ====== === =======
</TABLE>
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1999, by contractual maturity, are shown below. The summary is
divided into available for sale and held to maturity securities. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Equity securities in the available for sale portfolio consist
primarily of Federal Home Loan Bank ("FHLB") stock, which have no stated
maturity and are not included in the maturity schedule that follows.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Estimated Amortized Estimated
December 31, 1999 (In thousands) Cost Fair Value Cost Fair Value
- -------------------------------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in one year or less $45,121 $44,988 $11,780 $11,783
Due after one year through five years 37,448 36,644 27,885 27,940
Due after five years through ten years 65,348 63,622 21,812 21,493
Due after ten years 18,779 18,501 419 420
-------- -------- ------- -------
Total $166,696 $163,755 $61,896 $61,636
======== ======== ======= =======
</TABLE>
Gross gains of approximately $75,000 and $100,000 for 1999 and 1998,
respectively, were realized on the sale of investment securities. Gross losses
of approximately $26,000 and $40,000 were realized during 1999 and 1998,
respectively.
Investment securities with a book value of $157,725,000 and $154,528,000 at
December 31, 1999 and 1998 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) 1999 1998
- --------------------------- ---- ----
Commercial, financial, and agricultural $105,064 $116,625
Real estate - construction 38,471 24,770
Real estate - mortgage 390,225 351,879
Installment loans 78,451 85,156
Lease financing 37,100 34,955
------- -------
Total loans 649,311 613,385
Less unearned income (6,121) (8,702)
------- -------
Total loans, net of unearned income $643,190 $604,683
======== ========
Loans to directors, executive officers and 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 $15,808,000 and $16,011,000
at December 31, 1999 and 1998, respectively. An analysis of the activity with
respect to these loans follows.
(In thousands) Amount
- -------------- ------
Balance, December 31, 1998 $16,011
New loans 12,721
Repayments (12,525)
Loans no longer meeting disclosure requirements (399)
-------
Balance, December 31, 1999 $15,808
=======
4. ALLOWANCE FOR LOAN LOSSES
The Company's recorded investment in impaired loans, as defined in SFAS No. 114,
was $2,975,000 at December 31, 1999 and $348,000 at December 31, 1998. Of those
amounts, $1,252,000 and $0, respectively, represent loans for which an allowance
for loan losses, in the amounts of $874,000 and $0, has been established under
SFAS No. 114. For the years ended December 31, 1999 and 1998, the recorded
investment in impaired loans averaged $2,463,000 and $1,601,000, respectively.
Interest income recognized on impaired loans totaled $331,000, $103,000 and
$226,000 for the years 1999, 1998, and 1997, respectively.
The Company's charge off policy for impaired loans does not differ from the
charge off policy for loans outside the definition of SFAS No. 114. Loans that
are delinquent in excess of 120 days are charged off unless 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.
Year Ended December 31, (In thousands) 1999 1998 1997
- -------------------------------------- ---- ---- ----
Balance, beginning of year $9,048 $9,114 $8,741
Provisions for loan losses 2,863 1,134 1,830
Recoveries 690 1,072 1,294
Loans charged off (2,942) (2,272) (2,751)
------ ------ ------
Balance, end of year $9,659 $9,048 $9,114
====== ====== ======
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following.
December 31, (In thousands) 1999 1998
- --------------------------- ---- ----
Land, buildings, and leasehold improvements $30,236 $29,703
Furniture and equipment 12,676 12,999
------ ------
Total premises and equipment 42,912 42,702
Less accumulated depreciation and amortization (18,503) (17,841)
------- -------
Premises and equipment, net $24,409 $24,861
======= =======
Depreciation and amortization of premises and equipment was $2,430,000,
$2,230,000, and $2,054,000 in 1999, 1998, and 1997, respectively.
6. DEPOSIT LIABILITIES
Time deposits of $100,000 or more at December 31, 1999 and 1998 were $62,683,000
and $63,454,000, respectively.
At December 31, 1999, the scheduled maturities of time deposits were as follows.
(In thousands) Amount
-------------- ------
2000 $192,198
2001 59,783
2002 49,302
2003 6,940
Thereafter 7,726
--------
Total $315,949
========
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS
Securities sold under agreements to repurchase represent borrowings by the
Company which generally mature one business day following the date of the
transaction. Information pertaining to such borrowings is as follows.
December 31, (Dollars in thousands) 1999 1998
- ----------------------------------- ---- ----
Average balance during the year $41,741 $34,788
Average interest rate during the year 4.61% 5.06%
Maximum month end balance during the year $100,588 $49,900
Other borrowed funds consist primarily of advances to the subsidiary banks from
the Federal Home Loan Bank (FHLB) of Cincinnati. Such borrowings were $2,726,000
and $2,332,000 at December 31, 1999 and 1998, respectively. The weighted average
interest rate on FHLB advances was 7.36% and 7.75% at December 31, 1999 and
1998, respectively. The subsidiary banks pledge FHLB stock and extend a blanket
pledge of certain 1-4 family first mortgage loans as collateral for these
advances. The aggregate balance of the pledged loans must equal 150% of the
outstanding advances.
Maturities of long term borrowings at December 31, 1999 are as follows.
(In thousands) Amount
- -------------- ------
2000 $477
2001 1,488
2002 501
2003 245
2004 192
Thereafter 765
------
Total $3,668
======
8. INCOME TAXES
The components of income tax expense are as follows.
December 31, (In thousands) 1999 1998 1997
- --------------------------- ---- ---- ----
Currently payable $5,227 $5,418 $5,189
Deferred income taxes (324) (131) 633
----- ----- -----
Total applicable to operations 4,903 5,287 5,822
Charged to components of shareholders' equity:
Net unrealized securities gains (1,190) 139 238
------ ------ ------
Total income taxes $3,713 $5,426 $6,060
====== ====== ======
An analysis of the difference between the effective income tax rates and the
statutory federal income tax rate follows.
December 31, 1999 1998 1997
- ------------ ---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
Changes from statutory rates resulting from:
Tax exempt interest (8.6) (7.7) (6.7)
Nondeductible interest to carry municipal obligations 1.0 .9 .8
Amortization of intangibles .9 .9 .9
Low income housing tax credits (2.1) (1.0) (.5)
Other, net (.2) (1.0) (.3)
---- ---- ----
Effective tax rate 26.0% 27.1% 29.2%
==== ==== ====
The tax effects of the significant temporary differences which comprise deferred
tax assets and liabilities at December 31, 1999 and 1998 follows.
December 31, (In thousands) 1999 1998
- --------------------------- ---- ----
ASSETS
Loan loss reserve $3,381 $3,167
Deferred directors' fees 153 204
Postretirement benefit obligations 586 517
Stock options 808 450
Self-funded insurance 81 47
Investment securities 712
----- -----
Total deferred tax assets 5,721 4,385
LIABILITIES
Depreciation 1,403 1,521
Investment securities 370
Deferred loan fees 1,079 1,011
Lease financing operations 1,852 1,612
Other 139 137
----- -----
Total deferred tax liabilities 4,473 4,651
------ ------
Net deferred tax asset (liability) $1,248 $ (266)
====== ======
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, 1999.
9. 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. There were no cash or stock
contributions to the plan in each of the years in the three-year period ended
December 31, 1999.
The Company has also established a profit-sharing 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 1999, 1998, and 1997 was $842,000,
$893,000, and $847,000, respectively.
10. COMMON STOCK OPTIONS
In 1997, the Company's 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 was subsequently ratified by the Company's shareholders
at its annual shareholders' meeting held on May 12, 1998, the measurement date
of the plan. The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plan. Accordingly, since options
were granted during 1997 at the fair market value of the Company's stock on the
grant date, and the measurement date occurred during 1998, the Company
recognizes noncash compensation expense based on the intrinsic value of the
stock options measured on the date of shareholder ratification of the plan. The
amount of such expense recorded in 1999 and 1998, net of tax, was $724,000 and
$918,000, respectively. At December 31, 1999, the schedule of approximate
noncash compensation expense related to the Company's stock option plan, net of
tax and unadjusted for future forfeitures, is shown in the table below.
Year (In thousands) Amount
- ------------------- ------
2000 $633
2001 631
2002 536
2003 297
2004 145
------
Total $2,242
======
Had compensation expense been determined under the fair value method described
in SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
income and income per common share would have been as shown in the table below.
As the plan's measurement date was in 1998, the 1997 proforma net income and net
income per common share amounts in the table below include compensation expense
calculated using the intrinsic value of the stock options at December 31, 1997.
<PAGE>
December 31, (In thousands,
except per share data) 1999 1998 1997
- ----------------------- ---- ---- ----
NET INCOME
As reported $13,930 $14,247 $14,103
Proforma 13,884 14,189 13,991
NET INCOME PER COMMON SHARE
Basic, as reported 1.86 1.89 1.86
Basic, proforma 1.86 1.88 1.85
Diluted, as reported 1.86 1.89 1.86
Diluted, proforma 1.86 1.88 1.85
The fair value of the options granted are estimated as of the measurement date
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997: dividend yield of 3.18%; expected
volatility of 23.4%; risk free interest rate of 5.75%; and expected life of
seven years. The weighted average fair value of options granted was $16.11 per
share at May 12, 1998, the measurement date, and the intrinsic value of options
granted was $7.50 per share at December 31, 1997.
The plan provides for the granting of options to purchase up to 450,000 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 expires 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.
There were no options granted during 1998 or 1999. There were 55,719 shares
forfeited during the two-year period ended December 31, 1999. These shares are
available for the granting of additional stock options under the plan.
A summary of the status of the Company's stock option plan as of December 31,
1999, 1998, and 1997 and changes during the years ended on those dates is
presented below.
<TABLE>
<CAPTION>
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 394,136 $24.50 450,000 $24.50
Granted 450,000 $24.50
Forfeited (14,337) 24.50 (41,382) 24.50
Exercised (8,353) 24.50 (14,482) 24.50
------- ------ ------- ------ ------- ------
Outstanding at December 31 371,446 $24.50 394,136 $24.50 450,000 $24.50
======= ====== ======= ====== ======= ======
</TABLE>
The number of shares exercisable at December 31, 1999, 1998, and 1997 was
123,839, 63,356, and 0, respectively. The exercise price of outstanding options
at December 31, 1999 was $24.50 and the weighted average contractual life was
7.75 years.
<PAGE>
11. 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. The plan is unfunded.
The following schedules set forth a reconciliation of the changes in the plan's
benefit obligation and funded status for the periods ending December 31, 1999
and 1998.
(In thousands) 1999 1998
- -------------- ---- ----
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at beginning of year $2,535 $2,977
Service cost 2 2
Interest cost 165 202
Actuarial loss (gain) 94 (581)
Benefit payments (166) (65)
------ ------
Obligation at end of year $2,630 $2,535
====== ======
FUNDED STATUS $(2,630) $(2,535)
Unrecognized transition obligation 1,319 1,421
Unrecognized prior service cost 382 424
Unrecognized gain (726) (858)
------- -------
Accrued postretirement benefit costs $(1,655) $(1,548)
======= =======
The following table provides disclosure of the net periodic benefit cost as of
December 31.
(In thousands) 1999 1998
- -------------- ---- ----
Service cost $2 $2
Interest cost 165 202
Amortization of transition obligation 102 102
Amortization of prior service cost 42 42
Amortization of net gain (39)
---- ----
Net periodic benefit cost $272 $348
==== ====
Major assumptions:
Discount rate 7.25% 6.75%
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. For measurement purposes, a 7% 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 2003 and remain at that
level thereafter. A 1% change in the assumed health care cost trend rates would
have the following effects:
(In thousands) 1% Increase 1% Decrease
- -------------- ----------- -----------
Effect on total of service and interest cost
components of net periodic postretirement
health care benefit cost $18 $(16)
12. 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.
13. 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 were $134,378,000 and $93,686,000 at December 31, 1999 and 1998,
respectively. 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
$4,421,000 and $7,111,000 in irrevocable letters of credit outstanding at
December 31, 1999 and 1998, respectively.
14. 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.
15. CONTINGENCIES
As of December 31, 1999, there were various pending legal actions and
proceedings against the Company arising from the normal course of business and
in which claims for damages are asserted. Management, after discussion with
legal counsel, believes that these actions are without merit and that the
ultimate liability resulting from these legal actions and proceedings, if any,
will not have a material adverse effect upon the consolidated financial
statements of the Company.
16. 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, 1999, combined retained earnings of the subsidiary
banks were approximately $51,936,000 of which $12,943,000 was available for the
payment of dividends in 2000 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 $8,333,000 and $7,091,000 at December 31,
1999 and 1998, respectively.
The Company's banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements will 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, 1999.
As of December 31, 1999, 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 institutions' category.
The banks' actual capital amounts and ratios are also presented in the following
tables.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31, 1999 (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $126,229 18.63% $27,097 4.00% $40,646 6.00%
Farmers Bank & Capital Trust Co. 43,597 15.48 11,268 4.00 16,903 6.00
Farmers Bank and Trust Company 11,969 13.02 3,678 4.00 5,517 6.00
Lawrenceburg National Bank 9,688 13.35 2,903 4.00 4,355 6.00
First Citizens Bank 11,565 13.30 3,478 4.00 5,217 6.00
United Bank & Trust Co. 11,760 13.89 3,387 4.00 5,081 6.00
Kentucky Banking Centers, Inc. 7,455 11.40 2,615 4.00 3,923 6.00
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $134,712 19.89% $54,194 8.00% $67,743 10.00%
Farmers Bank & Capital Trust Co. 47,122 16.73 22,537 8.00 28,171 10.00
Farmers Bank and Trust Company 13,121 14.27 7,356 8.00 9,196 10.00
Lawrenceburg National Bank 10,597 14.60 5,806 8.00 7,258 10.00
First Citizens Bank 12,654 14.55 6,956 8.00 8,695 10.00
United Bank & Trust Co. 12,821 15.14 6,775 8.00 8,469 10.00
Kentucky Banking Centers, Inc. 8,273 12.65 5,230 8.00 6,538 10.00
TIER 1 CAPITAL (TO AVERAGE ASSETS)
Consolidated $126,229 12.77% $39,529 4.00% $49,412 5.00%
Farmers Bank & Capital Trust Co. 43,597 10.05 17,355 4.00 21,964 5.00
Farmers Bank and Trust Company 11,969 8.99 5,327 4.00 6,658 5.00
Lawrenceburg National Bank 9,688 9.31 4,163 4.00 5,203 5.00
First Citizens Bank 11,565 9.18 5,039 4.00 6,298 5.00
United Bank & Trust Co. 11,760 9.32 5,048 4.00 6,310 5.00
Kentucky Banking Centers, Inc. 7,455 8.67 3,438 4.00 4,297 5.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31, 1998 (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $122,132 19.18% $25,465 4.00% $38,198 6.00%
Farmers Bank & Capital Trust Co. 41,025 15.67 10,471 4.00 15,707 6.00
Farmers Bank and Trust Company 11,233 12.89 3,486 4.00 5,229 6.00
Lawrenceburg National Bank 8,944 13.39 2,672 4.00 4,008 6.00
First Citizens Bank 10,952 13.17 3,326 4.00 4,989 6.00
United Bank & Trust Co. 10,381 13.38 3,104 4.00 4,656 6.00
Kentucky Banking Centers, Inc. 7,530 11.70 2,574 4.00 3,861 6.00
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $130,103 20.44% $50,931 8.00 $63,663 10.00%
Farmers Bank & Capital Trust Co. 44,304 16.92 20,942 8.00 26,178 10.00
Farmers Bank and Trust Company 12,325 14.14 6,972 8.00 8,715 10.00
Lawrenceburg National Bank 9,780 14.64 5,344 8.00 6,680 10.00
First Citizens Bank 11,992 14.42 6,652 8.00 8,315 10.00
United Bank & Trust Co. 11,351 14.63 6,208 8.00 7,760 10.00
Kentucky Banking Centers, Inc. 8,335 12.95 5,149 8.00 6,436 10.00
TIER 1 CAPITAL (TO AVERAGE ASSETS)
Consolidated $122,132 12.80% $38,152 4.00% $47,690 5.00%
Farmers Bank & Capital Trust Co. 41,025 9.67 16,975 4.00 21,218 5.00
Farmers Bank and Trust Company 11,233 8.90 5,048 4.00 6,310 5.00
Lawrenceburg National Bank 8,944 9.00 3,975 4.00 4,969 5.00
First Citizens Bank 10,952 9.17 4,776 4.00 5,970 5.00
United Bank & Trust Co. 10,381 9.05 4,590 4.00 5,737 5.00
Kentucky Banking Centers, Inc. 7,530 8.82 3,415 4.00 4,268 5.00
</TABLE>
17. STOCK SPLIT
On January 26, 1998, the Company's Board of Directors approved a two-for-one
stock split of its common stock. The stock split was effective July 1, 1998 for
holders of record on June 1, 1998. The stock split increased the Company's
outstanding common shares from 3,777,620 to 7,555,240 shares on July 1, 1998.
Additionally, all references in the Consolidated Financial Statements, Footnotes
and Supplementary Data to the number of shares, per-share amounts, and market
prices of the Company's common stock have been restated to give retroactive
recognition to the stock split.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS. 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
No. 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.
Loans Receivable
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.
Securities Sold Under Agreements to Repurchase and Other Borrowed Funds
The fair value of securities sold under agreements to repurchase and 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.
<TABLE>
<CAPTION>
December 31, 1999 1998
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- -------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $135,360 $135,360 $91,834 $91,834
Investment securities:
Available for sale 167,944 167,944 191,487 191,487
Held to maturity 61,896 61,636 71,369 73,167
Loans, net 633,531 629,661 595,635 597,387
LIABILITIES
Deposits 862,220 862,750 830,001 833,347
Securities sold under agreements
to repurchase and other borrowed funds 45,639 45,477 30,250 30,264
</TABLE>
19. PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, (In thousands) 1999 1998
- --------------------------- ---- ----
ASSETS
Cash on deposit with subsidiaries $31,846 $33,502
Interest bearing deposits in other banks 100 100
Investment in subsidiaries 95,856 92,856
Other assets 517 673
-------- --------
Total assets $128,319 $127,131
LIABILITIES
Dividends payable $2,162 $2,113
Other liabilities 1,051 1,179
----- -----
Total liabilities 3,213 3,292
SHAREHOLDERS' EQUITY
Common stock 930 940
Capital surplus 11,686 10,520
Retained earnings 114,431 112,010
Accumulated other comprehensive (loss) income (1,941) 369
------- -------
Total shareholders' equity 125,106 123,839
------- -------
Total liabilities and shareholders' equity $128,319 $127,131
======== ========
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
December 31, (In thousands) 1999 1998 1997
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $10,382 $5,274 $16,922
Interest income 21 54 120
Other income 912 946 1,055
------ ----- ------
Total income 11,315 6,274 18,097
EXPENSE
Other expense 2,417 2,424 2,112
----- ----- -----
Total expense 2,417 2,424 2,112
----- ----- -----
Income before income tax benefit and equity in
undistributed income of subsidiaries 8,898 3,850 15,985
Income tax benefit 537 637 232
----- ----- ------
Income before equity in undistributed income
of subsidiaries 9,435 4,487 16,217
Equity in undistributed income of subsidiaries 4,495 9,760 (2,114)
------- ------- -------
Net income $13,930 $14,247 $14,103
======= ======= =======
</TABLE>
<PAGE>
19. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
December 31, (In thousands) 1999 1998 1997
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $13,930 $14,247 $14,103
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (4,495) (9,760) 2,114
Noncash compensation expense 298 410
Change in other assets and liabilities, net (16) (135) 166
----- ----- ------
Net cash provided by operating activities 9,717 4,762 16,383
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (8,401) (7,256) (6,216)
Purchase of common stock (3,177) (1,856) (644)
Stock options exercised 205 232
------- ------ ------
Net cash used in financing activities (11,373) (8,880) (6,860)
------- ------ ------
Net (decrease) increase in cash and cash equivalents (1,656) (4,118) 9,523
Cash and cash equivalents at beginning of year 33,602 37,720 28,197
------- ------- -------
Cash and cash equivalents at end of year $31,946 $33,602 $37,720
======= ======= =======
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for income taxes $6,025 $5,185 $5,649
Cash dividend declared and unpaid 2,162 2,113 1,815
</TABLE>
20. QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Unaudited (In thousands,
except per share data)
Quarters Ended 1999 March 31 June 30 Sept. 30 Dec. 31
- ------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $17,032 $17,090 $17,349 $17,563
Interest expense 6,842 6,705 6,698 6,939
------ ------ ------ ------
Net interest income 10,190 10,385 10,651 10,624
Provision for loan losses 194 441 506 1,722
------ ------ ------ ------
Net interest income after provision for loan losses 9,996 9,944 10,145 8,902
Other income 2,950 3,157 2,975 3,350
Other expense 8,069 8,263 7,931 8,323
------ ------ ------ ------
Income before income taxes 4,877 4,838 5,189 3,929
Income tax expense 1,374 1,170 1,421 938
------ ------ ------ ------
Net income $3,503 $3,668 $3,768 $2,991
====== ====== ====== ======
Net income per common share, basic and diluted $0.47 $0.49 $0.50 $0.40
Weighted average shares outstanding, basic 7,514 7,488 7,458 7,455
Weighted average shares outstanding, diluted 7,514 7,488 7,475 7,456
</TABLE>
<TABLE>
<CAPTION>
Unaudited (In thousands,
except per share data)
Quarters Ended 1998 March 31 June 30 Sept. 30 Dec. 31
- ------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $17,028 $17,294 $17,552 $17,807
Interest expense 7,172 7,265 7,456 7,254
------ ------ ------ ------
Net interest income 9,856 10,029 10,096 10,553
Provision for loan losses 232 202 216 484
------ ------ ------ ------
Net interest income after provision for loan losses 9,624 9,827 9,880 10,069
Other income 3,088 3,055 3,029 3,177
Other expense 7,699 8,671 8,057 7,788
------ ------ ------ ------
Income before income taxes 5,013 4,211 4,852 5,458
Income tax expense 1,431 1,043 1,322 1,491
------ ------ ------ ------
Net income $3,582 $3,168 $3,530 $3,967
====== ====== ====== ======
Net income per common share, basic and diluted $0.47 $0.42 $0.47 $0.53
Weighted average shares outstanding, basic 7,559 7,555 7,556 7,550
Weighted average shares outstanding, diluted 7,559 7,594 7,589 7,550
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
CORPORATE ADDRESS
The headquarters of Farmers Capital Bank Corporation is located at:
202 West Main Street
Frankfort, Kentucky 40601
Direct correspondence to:
Farmers Capital Bank Corporation
P.O. Box 309
Frankfort, Kentucky 40602-0309
Phone: (502) 227-1600
ANNUAL MEETING
The annual meeting of shareholders of Farmers Capital Bank Corporation will be
held Tuesday, May 9, 2000 at 11:00 a.m. at the main office of Farmers Bank &
Capital Trust Co., Frankfort, Kentucky.
FORM 10-K
For a copy of Farmers Capital Bank Corporation's Annual Report on Form 10-K
filed with the Securities and Exchange Commission, please write:
James H. Childers, Secretary
Farmers Capital Bank Corporation
P.O. Box 309
Frankfort, Kentucky 40602-0309
STOCK INFORMATION
Farmers Capital Bank Corporation's stock is traded on the National Association
of Securities Dealers Automated Quotation System (NASDAQ) SmallCap Market tier
of The NASDAQ Stock Market, with sales prices reported under the symbol: FFKT.
NASDAQ MARKET MAKERS
J.J.B. Hilliard, W.L. Lyons, Inc.
(502) 588-8400
(800) 444-1854
Knight Securities LP
(800) 302-9197
J.C. Bradford and Co., Inc.
(800) 443-8749
Morgan, Keegan and Company
(800) 260-0280
The Transfer Agent and Registrar for Farmers Capital Bank Corporation is the
Farmers Bank & Capital Trust Co.
<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, 1999 and the jurisdiction of incorporation in
which each subsidiary was incorporated or organized.
Percentage of
Voting
Jurisdiction Stock held by
Subsidiaries of the Registrant of Incorporation 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, Incorporated Kentucky 100%
Farmers Capital Insurance Corporation 1 Kentucky
Farmers Bank Realty Co. 1 Kentucky
Frankfort ATM Ltd. 2 Kentucky
Leasing One Corporation 1 Kentucky
1 A wholly owned subsidiary of Farmers Bank & Capital Trust Co.
2 A fifty (50%) percent owned joint venture of Farmers Bank & Capital Trust Co.
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Farmers Capital Bank Corporation
We consent to incorporation by reference in the registration statement (No.
333-63037) on Form S-8 of our report dated January 17, 2000, relating to the
consolidated balance sheets of Farmers Capital Bank Corporation and Subsidiaries
as of December 31, 1999 and 1998, and the related consolidated statements of
income, comprehensive income, shareholders' equity, and cash flows for each of
the years in the three year period ended December 31, 1999, which report appears
in the December 31, 1999, annual report on Form 10-K of Farmers Capital Bank
Corporation.
/s/ KPMG LLP
Louisville, Kentucky
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extrated from the December
31, 1999 financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 82,862
<INT-BEARING-DEPOSITS> 11,594
<FED-FUNDS-SOLD> 40,904
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 167,944
<INVESTMENTS-CARRYING> 61,896
<INVESTMENTS-MARKET> 61,636
<LOANS> 643,190
<ALLOWANCE> 9,659
<TOTAL-ASSETS> 1,039,787
<DEPOSITS> 862,220
<SHORT-TERM> 41,971
<LIABILITIES-OTHER> 10,490
<LONG-TERM> 3,668
0
0
<COMMON> 930
<OTHER-SE> 124,176
<TOTAL-LIABILITIES-AND-EQUITY> 1,039,787
<INTEREST-LOAN> 54,616
<INTEREST-INVEST> 12,972
<INTEREST-OTHER> 1,446
<INTEREST-TOTAL> 69,034
<INTEREST-DEPOSIT> 25,061
<INTEREST-EXPENSE> 27,184
<INTEREST-INCOME-NET> 41,850
<LOAN-LOSSES> 2,863
<SECURITIES-GAINS> 49
<EXPENSE-OTHER> 32,586
<INCOME-PRETAX> 18,833
<INCOME-PRE-EXTRAORDINARY> 18,833
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,930
<EPS-BASIC> 1.86
<EPS-DILUTED> 1.86
<YIELD-ACTUAL> 4.91
<LOANS-NON> 2,767
<LOANS-PAST> 2,102
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,048
<CHARGE-OFFS> 2,942
<RECOVERIES> 690
<ALLOWANCE-CLOSE> 9,659
<ALLOWANCE-DOMESTIC> 9,659
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
