<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 7, 1998
NATIONAL CITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 0-13585 35-1632155
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
227 MAIN STREET
P.O. BOX 868
EVANSVILLE, INDIANA 47705-0868
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (812) 464-9677
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
On July 29, 1998, the Registrant issued a news release announcing
earnings for the quarter and six months ended June 30, 1998. A copy of the
news release is filed as an exhibit to this report and is incorporated by
reference herein.
On August 6, 1998, the Registrant issued a news release announcing it
will implement back office restructuring and product standardization plans. A
copy of the news release is filed as a exhibit to this report and is
incorporated by reference herein.
As previously announced, the Registrant has entered a definitive
agreement with Progressive Bancshares, Inc. ("Progressive") to acquire
Progressive. The following financial statements of Progressive are filed as
exhibits to this report: (i) audited consolidated financial statements for
the years ended December 31, 1997 and 1996; (ii) consolidated balance sheets
as of March 31, 1998; and (iii) consolidated statements of income for the
three months ended March 31, 1998 and 1997.
Registrant hereby incorporates by reference the financial statements of
Illinois One Bancorp, Inc., Trigg Bancorp, Inc., Community First Financial,
Inc., 1st Bancorp Vienna, Inc., and Hoosier Hills Financial Corporation as
filed by Registrant pursuant to the Securities Act of 1933, as amended, and
as further described in the Index to Exhibits.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits incorporated by reference to Index to Exhibits.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 7, 1998
NATIONAL CITY BANCSHARES, INC.
By: /s/ Stephen C. Byelick, Jr.
---------------------------
Stephen C. Byelick, Jr.
-3-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
23 Consent of Crowe Chizek & Co., LLP
99.1 News release dated July 29, 1998
99.2 News release dated August 6, 1998
99.3 Financial Statements of Progressive Bancshares,
Inc.
99.4 Financial statements of Illinois One Bancorp, Inc.
(incorporated by reference from pages F-1 to F-13
of the Rule 424 prospectus filed by Registrant
with the Securities and Exchange Commission
("SEC") on April 10, 1998 (File No. 333-48933))
99.5 Financial statements of Trigg Bancorp, Inc.
(incorporated by reference from pages F-1 to F-18
of the Rule 424 prospectus filed by Registrant
with the SEC on May 11, 1998 (File No. 333-51509))
99.6 Financial statements of Community First
Financial, Inc. (incorporated by reference from
pages F-1 to F-32 of the Rule 424 prospectus
filed by Registrant with the SEC on May 14,
1998 (File No. 333-51923))
99.7 Financial statements of 1st Bancorp Vienna, Inc.
(incorporated by reference from pages F-1 to F-20
of the Form S-4 filed by Registrant with the SEC
on July 31, 1998 (File No. 333-60287))
99.8 Financial statements of Hoosier Hills Financial
Corporation (incorporated by reference from pages
F-1 to F-28 of the Form S-4 filed by Registrant
with the SEC on July 31, 1998 (File No.
333-60289))
</TABLE>
-4-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into Registrant's
registration statements on Form S-4 (File Nos. 333-51509, 333-51923,
333-60287, and 333-60289) of our report dated February 25, 1998, on
our audit of the consolidated balance sheets of Progressive Bancshares, Inc.
as of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for the years then ended.
Crowe Chizek & Co., LLP (formerly Eskew & Gresham PSC)
Lexington, Kentucky
August 5, 1998
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Contacts: Michael F. Elliott, Chairman and CEO of NCBE (812) 464-9604
Robert A. Keil, President of NCBE (812) 464-9673
NATIONAL CITY BANCSHARES, INC. REPORTS HIGHEST EVER
FIRST SIX MONTHS EARNINGS
EVANSVILLE, INDIANA -- July 29, 1998 -- National City Bancshares, Inc. (NASDAQ:
NCBE), a multi-bank holding company headquartered in Evansville, Indiana, today
reported that net income for the first six months ended June 30, 1998, was
$10,236,000, or $0.89 per share on a diluted basis, up from $10,046,000, or
$0.89 per share on a diluted basis for the same period in 1997.
Net income for the second quarter of 1998 reflects nonrecurring after-tax
charges of approximately $325,000 associated with merger activities. These
charges reduced earnings per share by approximately $0.03. Including these
nonrecurring charges, net income for the second quarter was $4,882,000, or $0.42
per share on a diluted basis, versus $5,144,000, or $0.46 per share on a diluted
basis in 1997.
"We have seen improvement in our operating performance for several years. Our
increase in operating income is directly attributable to the consistent
application of our profit improvement strategies across our newly acquired
institutions and strong management within our affiliates," commented Michael F.
Elliott, Chairman and Chief Executive Officer of NCBE.
Elliott stated that year-to-date and second quarter earnings evidence the firm's
commitment to creating long-term shareholder value. "We must always act in the
best long-term interests of our shareholders, and sometimes that means making
decisions that are not immediately translated into higher earnings."
Supporting this assertion, Robert A. Keil, President of NCBE, added, "Our 1998
volume of activity in the merger and acquisition area has added expenses,
adversely affecting current income. These new acquisitions, however, should
prove to be accretive, increase our ongoing profit potential, and fortify our
competitive position."
NCBE has also initiated a shift in its earning asset mix toward higher-yielding
commercial loans, away from lower yielding investments. Elliott commented,
"While we continue to maintain the highest of credit standards in growing our
loan portfolio, management realizes the low loan loss environment that the
industry has enjoyed will not persist. Thus, we have increased our reserves as
we have positively changed our asset composition Reserves as a percent of total
loans increased from .86% to .95%, or by over $3 million year-over-year."
Net interest income and noninterest income also improved over the prior year.
Net interest income was $15,653,000, compared to $13,802,000 for the same period
in 1997. This increase of $1,851,000, or 13.4 percent, was primarily due to an
increase in loan volume. Second quarter noninterest income, excluding security
gains, increased $769,000, or 33.4 percent, from $2,305,000 in 1997 to
$3,074,000 this year. On a year-to-date basis, 1998 non-interest income,
exclusive of security gains, increased $1,384,000, or 30.9%, over the
corresponding period in 1997.
During the second quarter, NCBE completed the acquisition of Illinois One
Bancorp, Inc., a one-bank holding company for Illinois One Bank, National
Association. Illinois One Bank had assets of $84.8 million as of June 30,
1998. Also during the quarter, NCBE announced definitive agreements with
Hoosier Hills Financial Corporation, a one-bank holding company for Ripley
County Bank in Osgood, Indiana; Princeton Federal Bank, fsb, in Princeton,
Kentucky; 1st Bancorp
<PAGE>
Vienna, Inc., a one-bank holding company for The First State Bank of Vienna
in Vienna, Illinois; and Commonwealth Commercial Corp., a one-bank holding
company for Bank of Crittenden in Crittenden, Kentucky.
Forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995 may be included in this release. A variety of factors could
cause NCBE's actual results to differ from those expected at the time of this
release. Investors are urged to carefully review and consider the various
disclosures made by NCBE in its periodic reports filed with the Securities and
Exchange Commission.
PROFILE OF NATIONAL CITY BANCSHARES, INC.
National City Bancshares, Inc., a $1.6 billion multi-bank holding company
headquartered in Evansville, Indiana, operates fourteen financial institutions
in forty-seven locations in Indiana, Illinois, and Kentucky. NCBE has
acquisitions pending with the following financial organizations: Trigg Bancorp,
Inc., headquartered in Cadiz, Kentucky; Community First Financial, Inc.,
headquartered in Maysville, Kentucky; Hoosier Hills Financial Corporation,
headquartered in Osgood, Indiana; 1st Bancorp Vienna, Inc., headquartered in
Vienna, Illinois; Princeton Federal Bank, fsb, headquartered in Princeton,
Kentucky; Commonwealth Commercial Corp., headquartered in Crittenden, Kentucky;
Downstate Banking Co., headquartered in Brookport, Illinois; and Progressive
Bancshares, Inc., headquartered in Lexington, Kentucky. If all pending
acquisitions are closed, NCBE will have total bank assets of nearly $2.2
billion.
<PAGE>
National City Bancshares, Inc.
Financial Highlights
<TABLE>
<CAPTION>
(Dollar Amounts Other Than Share Data in Thousands) Three Months Ended Six Months Ended
June 30 June 30
- -----------------------------------------------------------------------------------------------------------
PER SHARE: 1998 1997(1) 1998 1997(1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income - Basic $ 0.43 $ 0.46 $ 0.90 $ 0.90
Net Income - Diluted 0.42 0.46 0.89 0.89
Dividends Declared (2) 0.18 0.15 1/4 0.36 0.30 1/2
Book Value 14.35 12.58 14.35 12.58
Closing Stock Price 40.25 39.52 40.25 39.52
---------- ---------- ---------- ----------
FOR THE PERIOD:
Net Interest Income $15,653 $ 13,802 $ 30,458 $ 27,160
Provision for Loan Losses 1,575 273 1,841 684
Noninterest Income 4,068 2,458 6,916 5,094
Noninterest Expense 11,208 8,644 20,831 17,124
Net Income 4,882 5,144 10,236 10,046
Dividends Declared (2) 2,040 1,485 3,975 2,983
---------- ---------- ---------- ----------
END OF PERIOD BALANCES:
Total Assets $1,603,671 $1,332,194 $1,603,671 $1,332,194
Total Loans 1,139,367 913,084 1,139,367 913,084
Allowance for Loan Losses 10,842 7,830 10,842 7,830
Deposits 1,236,397 1,021,930 1,236,397 1,021,930
Shareholders' Equity 162,690 139,198 162,690 139,198
---------- ---------- ---------- ----------
AVERAGES:
Total Assets $1,629,933 $1,312,647 $1,533,863 $12,870,128
Loans, Net 1,107,344 887,171 1,049,101 868,442
Deposits 1,240,165 1,019,639 1,189,625 1,007,935
Shareholders' Equity 157,784 139,067 157,665 139,274
---------- ---------- ---------- ----------
<PAGE>
(Dollar Amounts Other Than Share Data in Thousands) Three Months Ended Six Months Ended
June 30 June 30
- -----------------------------------------------------------------------------------------------------------
1998 1997(1) 1998 1997(1)
---------- ---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 11,332,007 11,284,299 11,324,564 11,200,553
Diluted 11,478,212 11,307,256 11,472,290 11,330,150
---------- ---------- ---------- ----------
SELECTED RATIO:
Return on Average Assets 1.20% 1.57% 1.35% 1.57%
Return on Average Equity 12.41 14.84 13.10 14.56
Net Interest Margin 4.67 4.91 4.79 4.93
Tangible Equity to Tangible Assets 7.82 9.66 7.82 9.66
Equity Capital to Total Assets 10.14 10.45 10.14 10.45
Allowance for loan losses as a percent
of underperforming loans (3) 154.24 165.56 154.24 165.56
Ratio of Market-to-Book Value 280.49 314.18 280.49 314.18
Price Earnings Multiple 23.40 21.48 22.36 21.96
Cash Dividend Yield 0.89 0.77 1.79 1.54
---------- ---------- ---------- ----------
</TABLE>
(1) Restated to reflect the merger, on a pooling-of-interest basis, with Fourth
First Bancorp on December 31, 1997, and Illinois One Bancorp, Inc. on May
31, 1998. The per share data and weighted average shares outstanding have
been restated to reflect a 5% stock dividend paid in December 1997.
(2) As paid by National City Bancshares, Inc.
(3) Underperforming loans consist of nonaccrual loans, restructured loans, and
loans 90 days past due.
<PAGE>
EXHIBIT 99.2
IMMEDIATE RELEASE
Contacts: Michael F. Elliott, Chairman & CEO of NCBE (812) 464-9604
Curtis Ritterling, Executive Vice President of NCBE (812) 464-9611
NATIONAL CITY BANCSHARES, INC. ESTIMATES $5.1 MILLION ANNUAL
EARNINGS ENHANCEMENTS WITH OPERATION CONSOLIDATION
EVANSVILLE, INDIANA -- August 6, 1998 -- National City Bancshares, Inc.
(Nasdaq: NCBE), a multi-bank holding company headquartered in Evansville,
Indiana, announced today it will implement back office restructuring and
product standardization plans with an estimated annual pretax earnings
improvement of approximately $5.1 million.
The plans include centralizing the data processing systems and operational
functions and standardizing products types and services to eliminate
redundancy and reduce operating expenses. NCBE estimates annual savings of
approximately $3.6 million as a direct result of expense reductions due to
centralization and approximately $1.5 million due to enhanced revenues
relating to the standardizing of products and services.
NCBE will take a charge of approximately $1.2 million in the third quarter as
a result of the restructuring of current subsidiaries, and $0.4 million in
the fourth quarter as the result of the restructuring of pending acquisitions
which are scheduled to close during the fourth quarter. These charges
include approximately $0.2 million in computer equipment write-offs, $0.3
million in contract termination fees, and $1.1 million in severance pay and
other personnel-related expenses.
In addition, NCBE expects to incur one-time charges of approximately $0.9
million in the third quarter and $1.2 million in the fourth quarter in
related fees to this project. These charges include approximately $0.3
million in conversion costs and $1.8 million in professional fees.
It is estimated that the plans will be fully implemented by the second
quarter of 1999.
"Through our growth over the past several years, we have reached a critical
mass that allows us to capitalize on certain economies of scale," stated
Michael F. Elliott, Chairman and Chief Executive Officer of NCBE. "We are
currently operating at a strong efficiency ratio of 51.66%, which we expect
to lower through these plans. These plans will help us achieve our strategic
goals and increase returns to our shareholders."
Curtis D. Ritterling, Executive Vice President of NCBE, commented, "Regarding
all future acquisitions, we plan to implement this new operational structure
immediately. This should shorten the time generally required to make an
acquisition accretive and should contribute substantially to the bottom line."
Ritterling emphasized that this change will not detract from the local
service customers receive today. "On the contrary, by eliminating the daily
operational workload at the banks, the customer service staff should become
even more focused on meeting the financial needs of their customers," stated
Ritterling. "In addition, key decision-making functions, such as loan
approvals, will continue on a local basis."
Recently, it was announced that National City Bancshares, Inc. will merge
four subsidiaries into The National City Bank of Evansville. In addition,
NCBE has announced nine acquisitions in the past seven months. When all
pending acquisitions and subsequent mergers are completed, NCBE will have 14
bank charters and assets of approximately $2.2 billion. This includes 69
offices throughout Indiana, Kentucky, Illinois and Ohio.
<PAGE>
"FORWARD-LOOKING STATEMENTS" AS DEFINED IN THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 MAY BE INCLUDED IN THIS RELEASE. A VARIETY OF FACTORS
COULD CAUSE NCBE'S ACTUAL RESULTS TO DIFFER FROM THOSE EXPECTED AT THE TIME
OF THIS RELEASE INCLUDING GENERAL AND LOCAL ECONOMIC CONDITIONS, INTEREST
RATE CHANGES, RISKS ASSOCIATED WITH ACQUISITIONS, CREDIT RISKS, REGULATORY
RISKS AND COMPETITION. INVESTORS ARE URGED TO CAREFULLY REVIEW AND CONSIDER
THE VARIOUS DISCLOSURES MADE BY NCBE IN ITS PERIODIC REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ADDITIONAL INFORMATION ON NCBE STOCK IS AVAILABLE ON THE INTERNET AT
HTTP://WWW.NATIONALCITY.COM
<PAGE>
PROGRESSIVE BANCSHARES, INC.
LEXINGTON, KENTUCKY
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Progressive Bancshares, Inc.
Lexington, Kentucky
We have audited the consolidated balance sheets of Progressive
Bancshares, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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
Progressive Bancshares, Inc. at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Eskew & Gresham, PSC
February 25, 1998
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31
ASSETS (UNAUDITED) 1997 1996
<S> <C> <C> <C>
Cash and cash equivalents:
Cash and due from banks .......................... $ 4,480,041 $ 2,895,595 $ 4,865,968
Federal funds sold ............................... 16,000 262,000 1,275,000
------------------ ------------------ ------------------
Total cash and cash equivalents ............... $ 4,496,041 $ 3,157,595 $ 6,140,968
Investment securities:
Available for sale ............................... 15,052,874 17,918,444 16,743,256
Held to maturity ................................. 3,770,054 3,918,015 2,728,455
Federal Home Loan Bank and Federal
Reserve stock .................................... 1,094,600 1,075,600 1,004,600
Loans ............................................... 115,823,398 115,370,154 96,511,612
Unearned income ..................................... (4,054) (5,790) (21,996)
Allowance for loan losses ........................... (1,367,657) (1,315,185) (1,039,058)
------------------ ------------------ ------------------
Net loans ........................................... 114,451,687 114,049,179 95,450,558
Bank premises and equipment, net .................... 2,278,023 2,262,084 2,208,576
Interest receivable ................................. 1,261,826 1,332,785 1,113,925
Deferred income taxes ............................... 0 0 81,993
Income taxes refundable ............................. 0 0 39,766
Other assets ........................................ 623,564 489,080 488,206
------------------ ------------------ ------------------
TOTAL ASSETS ........................................ $ 143,028,669 $ 144,202,782 $126,000,303
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................. $ 15,796,651 $ 14,051,539 $ 14,118,113
Time deposits, $100,000 and over ................. 14,702,322 14,464,123 11,238,232
Other interest bearing ........................... 94,347,584 94,780,253 86,843,781
------------------ ------------------ ------------------
Total deposits ................................ $ 124,846,557 $ 123,295,915 $ 112,200,126
Federal funds purchased ............................. 675,000 1,000,000 325,000
Securities sold under agreements to repurchase ...... 3,831,619 3,797,548 1,415,485
Interest payable .................................... 573,685 588,394 480,842
Deferred income taxes ............................... 71,737 71,737 0
Other liabilities ................................... 185,136 147,509 184,544
Advances from Federal Home Loan Bank ................ 463,041 3,198,021 364,441
Long-term debt ...................................... 1,000,000 1,000,000 1,006,000
------------------ -------------- ---------------
Total liabilities ................................ $ 131,646,775 $ 133,099,124 $ 115,976,438
STOCKHOLDERS' EQUITY:
Common stock, 5,431 shares authorized,
issued and outstanding ........................ $ 5,431 $ 5,431 $ 5,431
Surplus .......................................... 1,686,749 1,686,749 1,686,749
Retained earnings ................................ 9,620,054 9,360,368 8,346,409
Net unrealized gain (loss) on securities available
for sale, net of tax in 1996 ................... 69,660 51,110 (14,724)
------------------ ------------------ ------------------
Total stockholders' equity ................... $ 11,381,894 $ 11,103,658 $ 10,023,865
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ........................................... $143,028,669 $ 144,202,782 $126,000,303
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Year Ended December 31
March 31, 1998 March 31, 1997 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees ............... $ 2,734,178 $ 2,294,332 $ 10,249,631 $ 8,340,604
Investment securities -
Taxable .......................... 248,152 317,248 1,206,202 1,350,735
Tax-exempt ....................... 47,258 41,428 183,457 170,386
Federal funds sold .................. 2,093 43,323 77,680 19,600
--------------- --------------- -------------- ---------------
$ 3,031,681 $ 2,696,331 $ 11,716,970 $ 9,881,325
INTEREST EXPENSE:
Deposits ............................ $ 1,330,568 $ 1,266,222 $ 5,308,414 $ 4,445,760
Other borrowed funds ................ 91,629 48,096 325,867 298,923
--------------- --------------- -------------- ---------------
$ 1,422,197 $ 1,314,318 $ 5,634,281 $ 4,744,683
Net interest income .................... $ 1,609,484 $ 1,382,013 $ 6,082,689 $ 5,136,642
Provision for loan losses .............. 71,020 74,000 290,080 216,000
--------------- --------------- -------------- ---------------
Net interest income after provision
for loan losses ..................... $ 1,538,464 $ 1,308,013 $ 5,792,609 $ 4,920,642
OTHER INCOME:
Service charges ..................... $ 128,541 $ 124,693 $ 507,029 $ 502,194
Fees on loans sold .................. 35,599 25,708 93,056 173,805
Insurance commissions ............... 23,089 19,141 76,135 79,596
Investment securities losses, net ... (5,712) 6,438 (2,914) (51,355)
Other ............................... 49,482 40,126 112,112 94,229
--------------- --------------- -------------- ---------------
$ 230,999 $ 216,106 $ 785,418 $ 798,469
OTHER EXPENSES:
Salaries and employee benefits ...... $ 537,065 477,867 $ 2,065,272 $ 1,942,527
Occupancy and equipment expenses .... 89,935 80,974 401,312 335,219
Taxes other than income, property
and payroll ...................... 36,989 35,222 149,375 134,951
Data processing fees ................ 65,997 39,331 194,906 148,408
Legal and professional fees ......... 34,152 20,679 144,330 111,078
Other ............................... 314,748 262,692 1,013,213 800,709
--------------- --------------- -------------- ---------------
$ 1,078,886 $ 916,765 $ 3,968,408 $ 3,472,892
Income before income taxes ............. $ 690,577 $ 607,354 $ 2,609,619 $ 2,246,219
Provision for income taxes
Historical .......................... 0 161,110 161,110 732,417
Proforma S Corporation adjustment ... 225,528 37,851 694,233 0
--------------- --------------- -------------- ---------------
Pro forma provision for income taxes $ 225,528 $ 198,961 $ 855,343 $ 732,417
NET INCOME (Historical) ................ $ 690,577 $ 446,244 $ 2,448,509 $ 1,513,802
=============== =============== ============== ===============
Proforma S Corporation tax adjustment .. 225,528 37,851 694,233 0
--------------- --------------- -------------- ---------------
PRO FORMA NET INCOME ................... $ 465,049 $ 408,393 $ 1,754,276 $ 1,513,802
Change in unrealized gains (losses)
on securities ....................... 18,550 (14,865) 65,834 (15,901)
--------------- --------------- -------------- ---------------
Pro forma comprehensive income ......... $ 483,599 $ 393,528 $ 1,820,110 $ 1,497,901
=============== =============== ============== ===============
Pro forma earnings per share ........... $ 85.63 $ 75.20 $ 323.01 $ 277.56
Pro forma earnings per share
assuming dilution ................... $ 85.63 $ 75.20 $ 323.01 $ 277.56
Weighed average shares outstanding ..... 5,431 5,431 5,431 5,454
</TABLE>
Page 3
See notes to consolidated financial statements.
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Net
Unrealized
(Gain) Loss
on Securities Total
Common Retained Available Stockholders'
Stock Surplus Earnings for Sale Equity
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1996 $ 5,455 $ 1,743,125 $ 7,432,607 $ 1,177 $ 9,182,364
Net income 0 0 1,513,802 0 1,513,802
Net change in unrealized gain (loss)
on securities available for sale 0 0 0 (15,901) (15,901)
Repurchase of 24 shares of common
stock (24) (56,376) 0 0 (56,400)
Cash dividends 0 0 (600,000) 0 (600,000)
--------- ------------ ------------ --------- ------------
Balances, December 31, 1996 $ 5,431 $ 1,686,749 $ 8,346,409 $ (14,724) $10,023,865
Net income 0 0 2,448,509 0 2,448,509
Net change in unrealized gain (loss)
on securities available for sale 0 0 0 65,834 65,834
Cash dividends 0 0 (1,434,550) 0 (1,434,550)
--------- ------------ ------------ --------- ------------
Balances, December 31, 1997 $ 5,431 $ 1,686,749 $ 9,360,368 $ 51,110 $11,103,658
Net income (unaudited) 0 0 690,577 0 690,577
Net change in unrealized gain (loss)
on securities available for sale
(unaudited) 0 0 0 18,550 18,550
Cash dividends (unaudited) 0 0 (430,891) 0 (430,891)
--------- ------------ ------------ --------- ------------
Balances, March 31, 1998 (unaudited) $ 5,431 $ 1,686,749 $ 9,620,054 $ 69,660 $11,381,894
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Year Ended December 31
March 31, 1998 March 31, 1997 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ ............................. 690,577 $ 446,244 $ 2,448,509 $ 1,513,802
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization
of goodwill ..................... 68,137 66,063 260,851 215,520
Provision for loan losses .......... 71,020 74,000 290,080 216,000
Deferred income taxes .............. 0 146,145 146,145 (18,405)
Net amortization on investment
securities ...................... 2,990 (1,284) (5,135) 9,049
Investment securities losses (gains) 5,712 (6,438) 2,914 51,355
Losses on disposal of fixed assets . 0 0 9,439 11,117
Federal Home Loan Bank stock
dividends ....................... (19,000) (17,100) (71,000) (30,300)
Changes in:
Interest receivable ............. 70,959 2,646 (218,860) 10,658
Income taxes refundable ......... 0 39,766 39,766 (20,998)
Other assets .................... (141,234) (97,080) (27,872) 84,895
Interest payable ................ (14,709) 114,674 107,552 17,157
Other liabilities ............... 37,627 (113,849) (37,035) 78,376
----------- ----------- ------------ ------------
Net cash provided by
operating activities ........ $ 772,079 $ 653,787 $ 2,945,354 $ 2,138,226
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of securities available
for sale ................................ $ 0 $(6,624,323) $(13,578,662) $ (5,372,322)
Proceeds from sales and principal
payments of securities available
for sale ................................ 2,796,181 1,274,512 10,738,543 12,476,831
Proceeds of calls and maturities of
securities available for sale ........... 82,197 1,509,064 1,754,588 1,450,656
Purchase of securities held to maturity ... 0 (1,241,221) (2,297,808) (250,569)
Proceeds of calls and maturities of
securities held to maturity ............. 145,000 440,000 1,094,200 1,525,000
Purchase of Federal Home Loan
Bank stock .............................. 0 0 0 (644,900)
Net change in loans ....................... (473,528) (4,711,857) (18,888,701) (16,715,988)
Proceeds from sale of bank premises
and equipment ............................ 0 0 0 12,000
Purchases of bank premises and
equipment ............................... (77,325) (121,739) (296,769) (335,329)
----------- ----------- ------------ ------------
Net cash provided by (used in)
investing activities ................ $ 2,472,525 $(9,475,564) $(21,474,609) $ (7,854,621)
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED DECEMBER 31
MARCH 31, 1998 MARCH 31, 1997 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net change in deposits ............ $ 1,550,642 $ 6,348,944 $ 11,095,789 $ 13,232,006
Net change in federal funds
purchased ....................... (325,000) (125,000) 675,000 (1,700,000)
Net change in securities sold under
agreements to repurchase ........ 34,071 584,891 2,382,063 (1,584,263)
Net change in advances from the
Federal Home Loan Bank .......... (2,734,980) (11,384) 2,833,580 (44,133)
Repayment of long-term debt ....... 0 0 (1,006,000) (640,000)
Proceeds from long-term debt ...... 0 0 1,000,000 0
Repurchase of common stock ........ 0 0 0 (56,400)
Dividends paid .................... (430,891) (200,299) (1,434,550) (600,000)
--------------- --------------- -------------- ---------------
Net cash provided by (used in)
financing activities ........... $(1,906,158) $ 6,597,152 $ 15,545,882 $ 8,607,210
Net increase (decrease) in cash and
cash equivalents ..................... $ 1,338,446 $(2,224,625) $ (2,983,373) $ 2,890,815
Cash and cash equivalents at beginning
of year ............................. 3,157,595 6,140,968 6,140,968 3,250,153
--------------- --------------- -------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ..................... $ 4,496,041 $ 3,916,343 $ 3,157,595 $ 6,140,968
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for -
Interest expense ................ $ 1,436,906 $ 1,199,644 $ 5,526,729 $ 4,727,526
Income taxes .................... $ 0 $ 0 $ 0 $ 771,820
</TABLE>
See notes to consolidated financial statements.
Page 6
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The consolidated financial statements
include the accounts of Progressive Bancshares, Inc. (the Corporation), a
multi-bank holding company, and its wholly-owned subsidiaries, The Anderson
National Bank and Farmers Bank. Progressive Mortgage Company, included as a
subsidiary in 1996, was dissolved effective December 31, 1996. All material
intercompany transactions and accounts have been eliminated in consolidation.
B. Nature of Operations - The Anderson National Bank operates under a
national bank charter and is subject to regulation by the Office of the
Comptroller of the Currency. Farmers Bank operates under a state bank charter
and is subject to regulation by the Kentucky Department of Financial
Institutions and the Federal Deposit Insurance Corporation. Both Banks provide
full banking services. The Corporation is subject to regulation by the Federal
Reserve Board.
Effective January 1, 1998, Farmers Bank was merged with and into The
Anderson National Bank and the name of the combined bank was changed to The
Progressive Bank, National Association.
C. Estimates in the Financial Statements - 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. Actual results could differ
from those estimates.
D. Cash and Cash Equivalents - For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from banks and
federal funds sold. Generally, federal funds are sold for one-day periods.
E. Investment Securities - The Banks classify their investment
security portfolios into three categories: trading securities, securities
available for sale and securities held to maturity. Fair value adjustments are
made to the securities based on their classification with the exception of the
held to maturity category. The Banks have no investments classified as trading.
Investment securities available for sale are carried at fair value.
Adjustments from amortized cost to fair value are recorded in stockholders'
equity, net of related income tax, under net unrealized gain (loss) on
securities available for sale. The adjustment is computed on the difference
between fair value and cost, adjusted for amortization of premiums and accretion
of discounts which are recorded to interest income on a constant yield method.
Investment securities for which the Banks have the positive intent
and ability to hold to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts which are recorded as adjustments to
interest income on a constant yield method.
Page 7
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains or losses on dispositions are based on the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
F. Loans - Loans are stated at the amount of unpaid principal,
reduced by unearned interest and an allowance for loan losses. Unearned interest
is recognized as income using a method which approximates the interest method.
Interest income on other loans is recorded on the accrual basis, except for
those loans on a nonaccrual of income status. Accrual of interest is
discontinued on a loan when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful. When interest accrual
is discontinued, interest income is subsequently recognized only to the extent
cash payments are received.
The allowance for loan losses is established through a provision for
loan losses charged to expense. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrowers' ability to pay. Loans are charged against the
allowance for loan losses when management believes that the collection of
principal is unlikely.
The allowance for loan losses on impaired loans is determined using
the present value of estimated future cash flows of the loan, discounted at the
loan's effective interest rate or the fair value of the underlying collateral. A
loan is considered to be impaired when it is probable that all principal and
interest amounts will not be collected according to the loan contract. The
entire change in present value of expected cash flows is reported as provision
for loan losses in the same manner in which impairment initially was recognized
or as a reduction in the amount of provision for loan losses that otherwise
would be reported.
G. Bank Premises and Equipment - Bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is recorded over the
estimated useful lives of the respective assets using both straight-line and
accelerated methods.
H. Income Taxes - The Corporation elected S Corporation status
effective January 1, 1997. Earnings and losses after that date are included in
the personal income tax returns of the stockholders and taxed depending on their
personal tax strategies. Accordingly, the Corporation will not incur additional
income tax obligations, and future financial statements will not include a
provision for income taxes. Prior to the change, income taxes currently payable
and deferred income taxes based on differences between the financial basis of
assets and liabilities and their tax basis were recorded in the financial
statements.
Page 8
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. Excess of Cost Over Net Assets of Acquired Subsidiaries - The
excess of cost over net assets of acquired subsidiaries (goodwill) is being
amortized on a straight-line basis over twenty-five years. Goodwill is included
in other assets on the accompanying consolidated balance sheets.
J. Advertising Expense - The Corporation charges all advertising
expenses to operations when incurred. No amounts have been established for any
future benefits relative to these expenditures.
K. Reclassifications - Certain reclassifications have been
made in the 1996 financial statements to conform to the class
ifications used in 1997.
L. Effect of New Accounting Standards - In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive
Income". The Statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
stockholders' equity and bypass net income. The provisions of this Statement are
effective beginning with 1998 interim reporting. These disclosure requirements
will have no impact on financial position or results of operations.
2. INVESTMENT SECURITIES
Amortized cost and fair value of investment securities by category at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury obligations $ 1,648,852 $25,451 $ 0 $ 1,674,303
Obligations of U. S. government
agencies 1,492,778 145 (5,910) 1,487,013
Asset-backed securities 14,377,927 46,005 (19,062) 14,404,870
Equity securities 347,777 4,481 0 352,258
----------- ------- -------- -----------
Total available for sale $17,867,334 $76,082 $(24,972) $17,918,444
Held to maturity:
Obligations of states and political
subdivisions $ 3,918,015 $69,247 $ (977) $ 3,986,285
</TABLE>
Page 9
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
2. INVESTMENT SECURITIES (CONTINUED)
Amortized cost and fair value of investment securities by category at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury obligations $ 1,380,246 $21,071 $ 0 $ 1,401,317
Obligations of U. S. government
agencies 3,947,321 33,504 (32,500) 3,948,325
Asset-backed securities 10,841,878 29,467 (77,333) 10,794,012
Equity securities 596,122 3,480 0 599,602
----------- ------- --------- -----------
Total available for sale $16,765,567 $87,522 $(109,833) $16,743,256
Held to maturity:
Obligations of states and political
subdivisions $ 2,728,455 $45,786 $ (1,242) $ 2,772,999
</TABLE>
The amortized cost and fair value of investment securities by
category at December 31, 1997, by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Available for sale:
Due in one year or less $ 897,327 $ 894,561
Due after one year through five years 2,244,303 2,266,755
Asset-backed securities 14,377,927 14,404,870
Equity securities 347,777 352,258
----------- -----------
$17,867,334 $17,918,444
Held to maturity
Due in one year or less $ 848,686 $ 851,210
Due after one year through five years 1,283,399 1,300,788
Due after five years through ten years 1,448,676 1,485,926
Due after ten years 337,254 348,361
----------- -----------
$ 3,918,015 $ 3,986,285
</TABLE>
Proceeds from sales of investment securities during 1997 and 1996
were approximately $7,317,000 and $9,380,000, respectively. Gross gains of
$24,207 and $12,174 and losses of $27,121 and $63,101, respectively, were
realized on those sales. Proceeds from calls of investment securities during
1997 and 1996 were $0 and $425,000, respectively. Gross losses of $0 and $428,
respectively, were realized on those calls. There were no gross gains realized
on those calls.
Page 10
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
2. INVESTMENT SECURITIES (CONTINUED)
Investment securities with a carrying value of approximately
$12,549,000 and $10,190,000 at December 31, 1997 and 1996, respectively, were
pledged to secure public deposits and for other purposes as required or
permitted by law.
3. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
<S> <C> <C>
Commercial and agricultural loans $ 64,637,699 $52,326,974
Residential mortgage loans 40,862,883 35,021,995
Consumer and installment loans 9,869,572 9,162,643
------------ -----------
$115,370,154 $96,511,612
Unearned interest (5,790) (21,996)
Allowance for loan losses (1,315,185) (1,039,058)
------------ -----------
$114,049,179 $95,450,558
Changes in the allowance for loan losses were as follows:
1997 1996
Balance, beginning of year $ 1,039,058 $ 871,979
Recoveries 49,445 43,893
Loans charged off (63,398) (92,814)
Provision for loan losses 290,080 216,000
----------- -----------
Balance, end of year $ 1,315,185 $ 1,039,058
</TABLE>
Impaired loans totaled $273,873 and $250,190 at December 31, 1997 and
1996. The average recorded investment in impaired loans during 1997 and 1996 was
$510,248 and $254,007, respectively. The total allowance for loan losses related
to these loans was $41,081 and $37,529 on December 31, 1997 and 1996,
respectively. Interest income on impaired loans of $41,975 and $24,166 was
recognized for cash payments received in 1997 and 1996, respectively.
Loans to directors, executive officers, principal shareholders and
their related interests were approximately $717,000 and $1,322,000 at December
31, 1997 and 1996, respectively. Such loans were made in the ordinary course of
business at the Banks' normal credit terms and interest rates and, in
management's opinion, do not represent more than a normal risk of collection.
Page 11
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
<S> <C> <C>
Land and building $ 2,162,926 $ 2,221,578
Furniture and equipment 1,526,190 1,188,355
----------- -----------
$ 3,689,116 $ 3,409,933
Accumulated depreciation (1,427,032) (1,201,357)
----------- -----------
$ 2,262,084 $ 2,208,576
</TABLE>
Depreciation expense for 1997 and 1996 amounted to $233,853 and
$188,522, respectively.
5. DEPOSITS
The aggregate amount of time deposits with a minimum denomination of
$100,000 was approximately $14,464,000 and $11,238,000 at December 31, 1997 and
1996, respectively.
At December 31, 1997, the scheduled maturities of all time deposits
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 58,685,371
1999 12,203,128
2000 1,978,372
2001 1,972,557
2002 and thereafter 135,503
------------
$ 74,974,931
</TABLE>
Certain directors and executive officers, and companies in which they
have beneficial ownership, are deposit customers of the Bank. The aggregate
dollar amount of these deposits was approximately $1,598,000 and $618,000 at
December 31, 1997 and 1996, respectively.
6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature
within one to four days from the transaction date. Information concerning
securities sold under agreements to repurchase is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Average balance during the year $ 3,029,853 $ 2,018,332
Average interest rate during the year 4.93% 4.22%
Maximum month-end balance during the year $ 4,377,251 $ 3,113,593
Securities underlying the agreements at year end:
Carrying value $ 4,461,161 $ 1,473,905
Estimated fair value $ 4,461,161 $ 1,473,905
</TABLE>
Page 12
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
7. INCOME TAXES
As discussed in Note 1, the Corporation changed its tax stands to
nontaxable effective as of January 1, 1997. Accordingly, the net deferred tax
asset at the date that the election for the change was filed has been
adjusted to the tax effect of the reversals of the Banks' allowance for loan
losses for tax purposes through a charge to the deferred tax provision. The
provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current $ 14,965 $750,822
Deferred 146,145 (18,405)
-------- --------
$161,110 $732,417
</TABLE>
The Corporation's deferred tax assets and liabilities at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets $ 0 $ 280,835
Deferred tax liabilities (71,737) (198,842)
------- ---------
Net deferred tax asset (liability) $(71,737) $ 81,993
</TABLE>
8. FEDERAL HOME LOAN BANK ADVANCES
The Banks own stock of the Federal Home Loan Bank (FHLB) of
Cincinnati, Ohio. This stock allows the Banks to borrow advances from the FHLB
which the Banks use to fund fixed rate mortgages.
At December 31, 1997 and 1996, $3,198,021 and $364,441, respectively,
represented the balance due on advances from the FHLB. The advances are
outstanding for terms ranging from two months to six years and interest rates
related to these advances range from 5.10% to 6.90%. The advances are secured by
the FHLB stock and all single family first mortgage loans of The Anderson
National Bank. Scheduled principal payments due on advances during the five
years subsequent to December 31, 1997 are as follows: 1998 - $2,928,829; 1999 -
$51,395; 2000 - $54,078; 2001 - $56,901; and 2002 - $59,872.
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Bank note, interest at the prime rate, payable at June 30, 1998,
secured by a security interest in substantially all of the
outstanding shares of common stock of The Anderson National Bank of
Lawrenceburg, Kentucky and Farmers Bank of Owingsville, Kentucky
$ 1,000,000 $ 1,006,000
</TABLE>
Page 13
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
The note and loan agreement require the Corporation and the Banks to
maintain certain capital and operational ratios, all of which have been complied
with as of December 31, 1997. The Corporation may, at its option, prepay the
note in whole or in part at any time.
10. RETIREMENT PLAN
The Corporation has in effect a defined contribution 401(k)
retirement plan covering all employees who meet certain eligibility
requirements. Total contributions were $73,271 and $81,342 in 1997 and 1996,
respectively.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities - For investment securities, fair values
are based on quoted market prices or dealer quotes.
Federal Home Loan Bank and Federal Reserve Stock - For FHLB and
Federal Reserve stock, carrying value is a reasonable estimate of fair
value.
Loans - Fair value is estimated by discounting the future cash flows
using the current 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 deposits of similar remaining maturities.
Borrowed Funds - For securities sold under agreements to repurchase,
federal funds purchased and long-term debt, the carrying amount is a reasonable
estimate of fair value. Fair value of FHLB advances was determined by readily
available rates as published by the FHLB.
Commitments to Extend Credit and Standby Letters of Credit -
Commitments to extend credit and standby letters of credit represent agreements
to lend to a customer at the market rate when the loan is extended, thus the
commitments and letters of credit are not considered to have a fair value.
Page 14
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
<TABLE>
<CAPTION>
The fair values of the Banks' financial instruments at December 31, 1997 and 1996 are as follows:
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,157,595 $ 3,157,595 $ 6,140,968 $ 6,140,968
Investment securities 21,836,459 21,904,729 19,471,711 19,516,255
Federal Home Loan Bank
and Federal Reserve stock 1,075,600 1,075,600 1,004,600 1,004,600
Loans 115,364,364 115,270,731 96,489,616 96,140,577
Less: allowance for loan
losses (1,315,185) (1,315,185) (1,039,058) (1,039,058)
------------- ------------- ------------- -------------
$ 140,118,833 $ 140,093,470 $ 122,067,837 $ 121,763,342
Financial liabilities:
Deposits $(123,295,915) $(123,566,088) $(112,200,126) (112,632,614)
Securities sold under
agreements to repurchase (3,797,548) (3,797,548) (1,415,485) (1,415,485)
Federal funds purchased (1,000,000) (1,000,000) (325,000) (325,000)
Advances from Federal Home
Loan Bank (3,198,021) (3,192,283) (364,441) (353,185)
Long-term debt (1,000,000) (1,000,000) (1,006,000) (1,006,000)
------------- --------------- --------------- --------------
$(132,291,484) $(132,555,919) $(115,311,052) $(115,732,284)
</TABLE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include standby letters of credit and
commitments to extend credit in the form of unused lines of credit. The Banks
use the same credit policies in making commitments and conditional obligations
as they do for on-balance sheet instruments.
Page 15
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
(CONTINUED)
At December 31, 1997 and 1996 the Banks had the following
financial instruments whose approximate contract amounts represent credit
risk:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Standby letters of credit $ 226,170 $ 166,090
Commitments to extend credit $ 11,423,000 $ 12,536,000
</TABLE>
Standby letters of credit represent conditional commitments issued
by the Banks to guarantee the performance of a third party. The credit risk
involved in issuing these letters of credit is essentially the same as the
risk involved in extending loans to customers. The Banks hold primarily
certificates of deposit and real estate as collateral to support some of
these commitments in whole or in part, while some are unsecured.
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 payment of a fee. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Collateral held varies but primarily includes real estate.
13. CONCENTRATION OF CREDIT RISK
The Banks grant commercial, residential and consumer related loans
to customers primarily located in Anderson, Bath, Fayette and adjoining
counties in Kentucky. Although the Banks have diverse loan portfolios, a
portion of the debtors' ability to perform on their contracts is somewhat
dependent upon the agricultural and manufacturing industries which have a
significant impact on the local economies.
14. LIMITATION ON BANK DIVIDENDS
The Corporation's principal source of funds is dividends received
from the subsidiary Banks. Banking regulations limit the amount of bank
dividends that may be paid without prior approval. Under these regulations,
the amount of dividends that may be paid in any calendar year is limited to
the current year's net profits, as defined, combined with the retained net
profits of the preceding two years. During 1998 the Banks could, without
prior approval, declare dividends of approximately $1,002,000 plus any 1998
net profits retained to the date of the dividend declaration.
Page 16
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
15. REGULATORY MATTERS
The Corporation and the Banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and the Banks must meet specific capital
guidelines that involve quantitative measures of the Corporation's and the
Banks' assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Corporation and Banks' capital
amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors.
Quantitative measures, established by regulation to ensure capital
adequacy, require Corporation and the Banks to maintain minimum amounts and
ratios (set forth in the table 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). Management believes, as of December
31, 1997 and 1996, that the Corporation and the Banks meet all capital
adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the
Kentucky Department of Financial Institutions categorized Farmers Bank as
well capitalized under the regulatory framework for prompt corrective action.
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized The Anderson National Bank 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
following table. There are no conditions or events since that notification
that management believes have changed the institutions' category.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated $ 11,583,000 15.60% $ 5,941,000 8.0% $ 7,426,000 10.0%
The Anderson National Bank 7,971,000 15.40 4,140,000 8.0 5,175,000 10.0
Farmers Bank 3,292,000 11.31 2,328,000 8.0 2,910,000 10.0
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 10,655,000 14.35% $ 2,970,000 4.0% $ 4,456,000 6.0%
The Anderson National Bank 7,324,000 14.15 2,070,000 4.0 3,105,000 6.0
Farmers Bank 2,928,000 10.06 1,164,000 4.0 1,746,000 6.0
Tier I Capital (to Average Assets):
Consolidated $ 10,655,000 8.08% $ 4,456,000 4.0% $ 6,842,000 5.0%
The Anderson National Bank 7,324,000 7.55 3,882,000 4.0 4,853,000 5.0
Farmers Bank 2,928,000 7.44 1,573,000 4.0 1,967,000 5.0
</TABLE>
Page 17
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
15. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $ 10,640,000 12.97% $ 6,562,000 8.0% $ 8,203,000 10.0%
The Anderson National Bank 7,507,000 13.25 4,538,000 8.0 5,667,000 10.0
Farmers Bank 3,168,000 12.03 2,106,000 8.0 2,632,000 10.0
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 9,614,000 11.72% $ 3,281,000 4.0% $ 4,922,000 6.0%
The Anderson National Bank 6,799,000 12.00 2,267,000 4.0 3,400,000 6.0
Farmers Bank 2,839,000 10.78 1,053,000 4.0 1,579,000 6.0
Tier I Capital (to Average Assets):
Consolidated $ 9,614,000 7.66% $ 5,023,000 4.0% $ 6,279,000 5.0%
The Anderson National Bank 6,799,000 8.13 3,345,000 4.0 4,108,000 5.0
Farmers Bank 2,839,000 7.61 1,497,000 4.0 1,820,000 5.0
</TABLE>
Page 18
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
16. PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of Progressive Bancshares,
Inc. (parent company only) as of December 31, 1997 and 1996 and for the years
then ended are presented below:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31
1997 1996
ASSETS
<S> <C> <C>
Cash $ 896,714 $ 403,196
Investment in subsidiaries 10,783,267 10,114,468
Goodwill 397,342 424,341
Other assets 31,304 89,899
------------ -----------
TOTAL ASSETS $ 12,108,627 $ 11,031,904
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 4,969 $ 2,039
Long-term debt 1,000,000 1,006,000
------------ -----------
Total liabilities $ 1,004,969 $ 1,008,039
Stockholders' equity:
Common stock, 5,431 shares authorized,
issued and outstanding $ 5,431 $ 5,431
Surplus 1,686,749 1,686,749
Retained earnings 9,360,368 8,346,409
Net unrealized gain (loss) on securities
available for sale 51,110 (14,724)
------------ -----------
Total stockholders' equity $ 11,103,658 $ 10,023,865
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,108,627 $ 11,031,904
</TABLE>
Page 19
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
16. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31
1997 1996
<S> <C> <C>
Income:
Dividend income $2,444,325 $1,515,704
Equity in earnings of subsidiaries 602,964 409,660
Other income 174,281 191,964
---------- ----------
Total income $3,221,570 $2,117,328
Expenses:
Interest expense $ 81,585 $ 115,984
Operating expenses 691,476 662,554
---------- ----------
Total expenses $ 773,061 $ 778,538
Income before income taxes $2,448,509 $1,338,790
Income tax benefit 0 175,013
---------- ----------
NET INCOME $2,448,509 $1,513,803
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,448,509 $1,513,803
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of goodwill 26,998 26,998
Equity in earnings of subsidiaries (602,964) (409,660)
Changes in:
Other assets 58,595 (41,422)
Other liabilities 2,930 (11,396)
---------- ----------
Net cash provided by
operating activities $1,934,068 $1,078,323
</TABLE>
Page 20
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
16. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31
1997 1996
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Return of capital of Progressive Mortgage
Company (former subsidiary) $ 0 $ 30,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $(1,006,000) $ (640,000)
Proceeds from long-term debt 1,000,000 0
Repurchase of stock 0 (56,400)
Dividends paid (1,434,550) (600,000)
----------- -----------
Net cash used in financing activities $(1,440,550) $(1,296,400)
Net increase (decrease) in cash $ 493,518 $ (188,077)
Cash at beginning of year 403,196 591,273
----------- -----------
CASH AT END OF YEAR $ 896,714 $ 403,196
</TABLE>
Page 21
