-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QYkjkqwCJtXPMn0HvaHo80k4Y8UNdiUaOgaJlmMBjl3yPkYzfi1FpANTomo4k5Nl myR0KPm7QcnD2kgRBStbzw== 0001000232-99-000004.txt : 19991115 0001000232-99-000004.hdr.sgml : 19991115 ACCESSION NUMBER: 0001000232-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOURBON BANCSHARES INC /KY/ CENTRAL INDEX KEY: 0001000232 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-96358 FILM NUMBER: 99749635 BUSINESS ADDRESS: STREET 1: 4TH & MAIN ST STREET 2: P O BOX 157 CITY: PARIS STATE: KY ZIP: 40362-0157 MAIL ADDRESS: STREET 1: 4TH & MAIN ST STREET 2: PO BOX 157 CITY: PARIS STATE: KY ZIP: 40362-0157 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ___________________ Commission File Number: 33-96358 BOURBON BANCSHARES, INC. (Exact name of registrant as specified in its charter) Kentucky 61-0993464 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P.O. Box 157, Paris, Kentucky 40362-0157 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (606)987-1795 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 _____ Number of shares of Common Stock outstanding as of November 12, 1999: 2,802,471. BOURBON BANCSHARES, INC. Table of Contents Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statement of Income and Comprehensive Income Six Months Ending September 30, 1999 & 1998 4 Consolidated Statement of Income and Comprehensive Income Three Months Ending September 30, 1999 & 1998 5 Consolidated Statements of Cash Flows Six Months Ending September 30, 1999 & 1998 6 Consolidated Statements of Cash Flows Three Months Ending September 30, 1999 & 1998 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Part II - Other Information 21 Signatures 22 Exhibits 27 Financial Data Schedule 23 Item 1 - Financial Statements CONSOLIDATED BALANCE SHEET (unaudited) (thousands) 9/30/99 12/31/98 Assets Cash & Due From Banks $ 12,682 $ 10,756 Investment Securities: Securities Held to Maturity 15,407 16,934 Securities Available for Sale 50,378 55,420 Federal Home Loan Bank Stock 3,288 3,119 Mortgage Loans Held for Sale 3,159 5,909 Loans $227,486 $206,934 Reserve for Loan Losses 3,053 2,735 Net Loans $224,433 $204,199 Premises and Equipment 7,195 6,794 Other Assets 6,599 5,574 Total Assets $323,141 $308,705 Liabilities & Stockholders' Equity Deposits Demand $ 40,490 $ 40,336 Savings & Interest Checking 88,694 96,579 Certificates of Deposit 134,912 121,825 Total Deposits $264,096 $258,740 Repurchase Agreements 6,070 6,713 Federal Home Loan Bank Advances 16,667 6,954 Other Borrowed Funds 2,327 4,535 Other Liabilities 2,789 2,391 Total Liabilities $291,949 $279,333 Stockholders' Equity Common Stock $ 6,491 $ 6,474 Retained Earnings 25,007 22,832 Accumulated Other Comprehensive Income (306) 66 Total Stockholders' Equity $ 31,192 $ 29,372 Total Liabilities & Stockholders' Equity $323,141 $308,705 BOURBON BANCSHARES, INC. CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited) (thousands, except per share amounts) Nine Months Ending 9/30/99 9/30/98 INTEREST INCOME: Loans, including fees $ 14,002 $ 12,637 Investment Securities 2,945 3,290 Other 260 361 Total Interest Income $ 17,207 $ 16,288 INTEREST EXPENSE: Deposits $ 6,806 $ 7,352 Other 866 677 Total Interest Expense $ 7,672 $ 8,029 Net Interest Income $ 9,535 $ 8,259 Loan Loss Provision 525 488 Net Interest Income After Provision $ 9,010 $ 7,771 OTHER INCOME: Service Charges $ 1,772 $ 1,646 Securities Gains (Losses) 1 35 Other 772 560 Total Other Income $ 2,545 $ 2,241 OTHER EXPENSES: Salaries and Benefits $ 3,658 $ 3,371 Occupancy Expenses 875 854 Other 2,347 2,070 Total Other Expenses $ 6,880 $ 6,295 Income Before Taxes $ 4,675 $ 3,717 Income Taxes 1,304 978 Net Income $ 3,371 $ 2,739 Other Comprehensive Income, net of tax: Change in Unrealized Gains on Securities (372) (4) Comprehensive Income $ 2,999 $ 2,735 Earnings per share $ 1.20 $ 0.98 Earnings per share - assuming dilution $ 1.18 $ 0.96 CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited) (thousands, except per share amounts) Three Months Ending 9/30/99 9/30/98 INTEREST INCOME: Loans, including fees $ 4,891 $ 4,336 Investment Securities 960 1,070 Other 71 100 Total Interest Income $ 5,922 $ 5,506 INTEREST EXPENSE: Deposits $ 2,283 $ 2,482 Other 339 218 Total Interest Expense $ 2,622 $ 2,700 Net Interest Income $ 3,300 $ 2,806 Loan Loss Provision 175 163 Net Interest Income After Provision $ 3,125 $ 2,643 OTHER INCOME: Service Charges $ 478 $ 460 Securities Gains (Losses) 15 7 Other 358 318 Total Other Income $ 851 $ 785 OTHER EXPENSES: Salaries and Benefits $ 1,242 $ 1,124 Occupancy Expenses 291 304 Other 810 742 Total Other Expenses $ 2,343 $ 2,170 Income Before Taxes $ 1,633 $ 1,258 Income Taxes 457 328 Net Income $ 1,176 $ 930 Other Comprehensive Income, net of tax: Change in Unrealized Gains on Securities (33) 93 Comprehensive Income $ 1,143 $ 1,023 Earnings per share $ 0.42 $ 0.33 Earnings per share - assuming dilution $ 0.42 $ 0.33 BOURBON BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (thousands) Nine Months Ending 9/30/99 9/30/98 Cash Flows From Operating Activities Net Income $ 3,371 $ 2,739 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 450 428 Amortization 380 352 Investment securities (accretion) amortization, net 27 (22) Provision for loan losses 525 488 Deferred Income Taxes (53) (50) Investment securities losses (gains), net (1) (35) Originations of loans held for sale (19,345) (24,272) Proceeds from sale of loans 22,210 27,984 Capitalization of Mortgage Servicing Rights (203) (252) Losses (gains) on sale of fixed assets - 25 Losses (gains) on sale of loans (115) (94) Losses (gains), including write-downs, on real estate acquired through foreclosure, net 25 - Changes in: Interest receivable (286) (417) Income taxes refundable (47) - Other assets (592) (34) Interest payable 229 119 Income taxes payable 26 285 Other liabilities 143 (416) Net cash provided by operating activities $ 6,744 $ 6,828 Cash Flows From Investing Activities Purchases of securities available for sale $(32,653)$(19,266) Proceeds from sales of securities available for sale 17,828 5,544 Proceeds from principal payments, maturities and calls of securities available for sale 19,084 26,606 Purchase of securities held to maturity - (2,375) Proceeds from sales, principal payments, maturities and calls of securities held to maturity 1,551 833 Net change in loans (20,816) (18,217) Purchases of bank premises and equipment, net (851) (1,031) Net cash provided by investing activities (15,857) (7,906) Cash Flows From Financing Activities: Net change in deposits $ 5,356 $ 9,793 Net change in securities sold under agreements to repurchase and other borrowings (2,851) (5,174) Advances from Federal Home Loan Bank 10,000 4,000 Payments on Federal Home Loan Bank advances (287) (4,460) Purchase of common stock (304) - Proceeds from issuance of common stock 50 142 Dividends paid (925) (841) Net cash provided by financing activities 11,039 3,460 Net increase (decrease) in cash and cash equivalents 1,926 2,382 Cash and cash equivalents at beginning of period 10,756 12,275 Cash and cash equivalents at end of period $ 12,682 $ 14,657 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (thousands) Three Months Ending 9/30/99 9/30/98 Cash Flows From Operating Activities Net Income $ 1,176 $ 930 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 150 143 Amortization 125 121 Investment securities (accretion) amortization, net 7 (10) Provision for loan losses 175 163 Deferred Income Taxes (21) (14) Investment securities losses (gains), net (15) (7) Originations of loans held for sale (4,090) (6,195) Proceeds from sale of loans 4,418 6,023 Capitalization of Mortgage Servicing Rights (35) (64) Losses (gains) on sale of loans (8) (54) Changes in: Interest receivable (349) (184) Income taxes refundable 180 57 Other assets (382) (55) Interest payable 239 (10) Income taxes payable 26 285 Other liabilities 251 130 Net cash provided by operating activities $ 1,847 $ 1,259 Cash Flows From Investing Activities Purchases of securities available for sale $(10,039)$ (8,088) Proceeds from sales of securities available for sale 9,007 2,002 Proceeds from principal payments, maturities and calls of securities available for sale 4,949 7,662 Purchase of securities held to maturity - (1,385) Proceeds from sales, principal payments, maturities and calls of securities held to maturity 1,286 50 Net change in loans (13,360) (7,556) Purchases of bank premises and equipment, net (547) (345) Net cash provided by investing activities (8,704) (7,660) Cash Flows From Financing Activities: Net change in deposits $ 11,287 $ 15,171 Net change in securities sold under agreements to repurchase and other borrowings (8,016) (5,159) Advances from Federal Home Loan Bank 5,000 - Payments on Federal Home Loan Bank advances (73) 1,929 Purchase of common stock (68) - Proceeds from issuance of common stock - 56 Dividends paid (308) (281) Net cash provided by financing activities $ 7,822 $ 11,716 Net increase (decrease) in cash and cash equivalents $ 965 $ 5,315 Cash and cash equivalents at beginning of period 11,717 9,342 Cash and cash equivalents at end of period $ 12,682 $ 14,657 BOURBON BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In Management's opinion, the financial information, which is unaudited, reflects all adjustments, (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the nine and three month periods ended September 30, 1999 and September 30, 1998 in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with Bourbon Bancshares, Inc. (Company) Annual Report on Form 10-K. 2. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The requirements are disclosure related and its implementation will have no impact on the Company's financial condition or results of operations. Prior period financial statements have been restated to meet this reporting format. 3. Recently, the Financial Accounting Standards Board issued Statement 128, "Earnings Per Share", under which basic and diluted earnings per share are computed. Prior amounts have been restated to be comparable. Basic earnings per share is based on net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share shows the dilutive effect of additional common shares issuable under stock options. 4. Dividends per share paid for the quarter ended September 30, 1999 were $0.11 compared to $0.10 on september 30, 1998. This is the same rate of dividend paid in each of the quarters of the respective years. 5. As of July 15, 1999, the Company issued a two for one stock split. Each shareholder will receive one additional share for each share they held. Relative numbers have been adjusted to reflect this change. 6. On August 13, 1999, the Company acquired the Wilmore office of National City and assumed certain deposits and other branch related liabilities. Assets purchased consist of land, bank premises and equipment, intangible assets and other assets. Kentucky Bank was paid $8.2 million in cash for the deposits and branch related liabilities assumed, less assets purchased. Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Summary Bourbon Bancshares, Inc. recorded net income of $3.4 million, or $1.20 per share and $1.18 per share assuming dilution for the first nine months ended September 30, 1999 compared to $2.7 million, or $0.98 per share and $0.96 per share assuming dilution for September. The first nine months reflects an increase in earnings of 23%. The net income for third quarter of 1999 was $1.2 million, or $0.42 per share and $0.42 per share assuming dilution compared to $930 thousand, or $0.33 per share and $0.33 per share assuming dilution for the same period in 1998. The third quarter's net income resulted in a 26% increase from 1998 to 1999. The per share amounts above have been adjusted to reflect the 2 for 1 stock split effective in July 1999. Return on average assets was 1.42% for the first nine months ended September compared to 1.27% for the same time period in 1998, an increase of 12%. For the third quarter of 1999, the return on average assets was 1.47% compared to 1.28% in 1998, an increase of 15%. Return on average equity was 14.9% and 13.2% for the nine months ended September 30, 1999 and 1998, respectively, an increase of 13%. The third quarter of 1999 resulted in an increase in return on equity of 16% from 13.2% to 15.3% in 1999. Net Interest Income Net interest income was $9.5 million for the nine months ended September 30, 1999 compared to $8.2 million in 1998, resulting in an increase of $1.3 million or 15.4%. Net interest income for the three months ended September 30, 1999 was $3.3 million compared to $2.8 million for the same period in 1998. Loan volume continues to improve. Year to date average loans are up $24 million, or nearly 12% from 1998 to 1999 resulting in an increase in loan interest income of $1.4 million for the first nine months and $555 thousand for the third quarter. Average deposits also increased from 1998 to 1999, up $14 million, or 6%. This increased volume within the declining rate environment resulted in lower interest expense of $546 thousand for the first nine months and $199 thousand for the third quarter. Non-Interest Income Non-interest income increased for the nine-month period ended September 30 from $2.2 million in 1998 to $2.5 million in 1999. Third quarter's non-interest income increased from $785 thousand in 1998 to $851 thousand in 1999. For the year, an increase of $126 thousand in service charges from 1998 to 1999 is mainly attributable to an improvement in overdraft charges of $104 thousand ($60 thousand for the third quarter). The third quarter of 1999 reflects an increase in service charges of $18 thousand when compared to 1998. Trust income accounts for $77 thousand, debit card interchange income accounts for $46 thousand, and gains on loans sold accounts for $21 thousand of the $212 thousand increase in other income for the first nine months. Other income increased $40 thousand for the three months ending September 30, 1999 compared to 1998. Trust commissions increased $9 thousand during the third quarter of 1999 compared to 1998. The increase in trust fees is mainly due to non-recurring estate fees and trust termination fees. Non-Interest Expense The explanations for the increase of $585 thousand in non- interest expenses from $6.3 million for the nine months ended September 30, 1998 to $6.9 million for the same period in 1999 follows. The third quarter increase was $173 thousand from $2.2 million in 1998 to $2.3 million in 1999. Salaries and benefits increased $287 thousand for the first nine months of 1999 compared to 1998, an increase of 8.5%, and increased $118 thousand during the third quarter of 1999 compared to 1998. In 1999, the Company implemented a compensation plan with additional incentive compensation. Incentives for the first nine months were $115 thousand greater in 1999 compared to 1998 due to this change. Other compensation and benefits increased 5%. Occupancy expense increased $21 thousand to $875 thousand for the first nine months of 1999 compared to 1998. The decrease for the third quarter was $13 thousand. Depreciation is up $22 thousand for the year. Equipment maintenance was $10 thousand higher for the first nine months of 1999. Other expenses for the first nine months of 1999 compared to 1998 increased $277 thousand, from $2.1 million to $2.3 million. The third quarter increase compared to 1998 was $68 thousand. During the third quarter of 1999, the processing of electronic products was changed. Costs of these products and their increased usage, and the related conversion have resulted in an increase in expenses of $100 thousand for 1999 compared to 1998. Other taxes are $25 thousand greater in 1999 compared to 1998. The overall growth of the Company has caused this item to increase. With the selling of mortgage loans, the amortization of mortgage servicing rights increased $29 thousand from 1998 to 1999. Income Taxes The tax equivalent rate for the nine months ended September 30 was 28% for 1999 and 26% for 1998. The rate for the third quarter of 1999 was 28% and for 1998 was 26%. These rates being less than the statutory rate is a result of the tax-free securities and loans held by the Company. Liquidity and Funding The cash flow statements provide a useful analysis of liquidity. This report reveals an increase of cash and cash equivalents for the first nine months of 1999 of $1.9 million and of $2.4 million for the same period in 1998. The three months ending September 30, 1999 shows an increase in cash and cash equivalents of $965 thousand and of $5.3 million for the same period in 1998. In 1999, proceeds from the sale of loans were nearly $22 million compared to $28 million in 1998. Four million dollars of 1998 sales and five million dollars of 1999 loan securitizations were of a nonrecurring nature. The decline in rates allowed the Company to sell some lower coupon loans. Originations of loans held for sale were $19 million and $24 million for the nine months ending September 30, 1999 and 1998, respectively. Third quarter originations were $4 million in 1999 and 6 million in 1998. The loans sold during the third quarter were $4 million in 1999 and $6 million in 1998. For the first nine-months, proceeds from security transactions have exceeded purchases by $6 million in 1999 and $11 million in 1998. For the third quarter, proceeds from security transactions have exceeded purchases by $5 million in 1999 and $241 thousand in 1998. Of these changes, principal payments on securities have amounted to over $6 million in 1999 and over $10 million for the same period in 1998. During 1999, $10 million has been borrowed from the Federal Home Loan Bank (FHLB), $5 million in the third quarter. In 1998, $4 million in advances were received from the FHLB and $4 million repaid on FHLB advances. Short-term borrowings decreased $3 million in 1999 and $5 million in 1998. Deposits increased $5 million in 1999 compared to $10 million in 1998. Management believes there is sufficient liquidity to meet all reasonable borrower, depositor and creditor needs in the present economic environment. Non-Performing Assets As of September 30, 1999, the Company's non-performing assets totaled $1.1 million or 0.4 of loans compared to $931 thousand or 0.5% of loans in 1998. (See table below) Real estate loans composed 69% and 65% of the non-performing loans as of September 30, 1999 and 1998, respectively. Lost interest income on the non-accrual loans for both 1999 and 1998 is immaterial. September 30 (in thousands) 1999 1998 Non-accrual Loans $ 155 $ 227 Accruing Loans which are Contractually past due 90 days or more 505 555 Restructured Loans 135 149 Total Nonperforming and Restructured $ 795 $ 931 Other Real Estate 312 - Total Nonperforming and Restructured Loans and Other Real Estate $ 1,107 $ 931 Nonperforming and Restructured Loans as a Percentage of Net Loans 0.35% 0.47% Nonperforming and Restructured Loans and Other Real Estate as a Percentage of Total Assets 0.34% 0.31% Provision and Reserve for Possible Loan Losses The 1999 nine-month provision for loan losses of $525 thousand is higher than the 1998 number of $488 thousand. Loan growth has required management to increase the provision in order to maintain a reserve ratio that is adequate and indicative of the quality of loans currently in the portfolio. As depicted in the table below, the loan loss reserve to total loans was 1.34% on September 30, 1999 and 1.32% on September 30, 1998. Net charge-offs for the periods mentioned above have been relatively insignificant. Management feels the current loan loss reserve is sufficient to meet future loan problems. Loan Losses Nine Months Ended September 30 (in thousands) 1999 1998 Balance at Beginning of Period $ 2,735 $ 2,322 Amounts Charged-off: Commercial $ - $ 3 Real Estate Mortgage 38 11 Agricultural 54 15 Consumer 152 205 Total Charged-off Loans $ 244 $ 234 Recoveries on Amounts Previously Charged-off: Commercial $ 3 $ 3 Real Estate Mortgage 1 8 Agricultural 2 1 Consumer 31 48 Total Recoveries $ 37 $ 60 Net Charge-offs $ 207 174 Provision for Loan Losses 525 488 Balance at End of Period $ 3,053 $ 2,636 Total Loans, Net of Unearned Income Average $211,801 $188,707 At September 30 227,486 199,529 As a Percentage of Average Loans: Net Charge-offs 0.10% 0.09% Provision for Loan Losses 0.25% 0.26% Allowance as a Percentage of Period-end Net Loans 1.34% 1.32% Allowance as a Multiple of Net Charge-offs 14.7 15.1 Loan Losses Quarter Ended September 30 (in thousands) 1999 1998 Balance at Beginning of Period $ 2,935 $ 2,542 Amounts Charged-off: Commercial $ - $ - Real Estate Mortgage 10 - Agricultural 11 15 Consumer 44 83 Total Charged-off Loans $ 65 $ 98 Recoveries on Amounts Previously Charged-off: Commercial $ - $ 1 Real Estate Mortgage - 7 Agricultural 1 - Consumer 7 21 Total Recoveries $ 8 $ 29 Net Charge-offs $ 57 $ 69 Provision for Loan Losses 175 163 Balance at End of Period $ 3,053 $ 2,636 Total Loans, Net of Unearned Income Average $212,579 $187,368 At September 30 227,486 199,529 As a Percentage of Average Loans: Net Charge-offs 0.03% 0.04% Provision for Loan Losses 0.08% 0.09% Allowance as a Percentage of Period-end Net Loans 1.34% 1.32% Allowance as a Multiple of Net Charge-offs 53.6 38.2 Year 2000 Management has assessed the operational and financial implications of its Year 2000 needs and developed a plan to address its data processing systems and their ability to handle the change. Management has determined that if a business interruption as a result of the Year 2000 issue occurred, such an interruption could be material. The primary effort required to prevent a potential business interruption is the installation of the most current software release from the Company's third party provider and replacement of certain system hardware. The third party software provider has warranted that Year 2000 remediation and testing efforts to become compliant have been successfully completed. Testing of mission critical systems was completed at the end of the first quarter. Non-mission critical systems have been evaluated and the final follow-up was completed during the third quarter. Current cost estimates for this project are under $150 thousand, with the majority of this expenditure being for equipment and software to be capitalized over 3-5 years. In addition, over $400 thousand was spent on a new mainframe computer system to enhance our overall computer technology. Year 2000 expenses are subject to change and could vary from current estimates if the final requirements for Year 2000 readiness exceed management's expectations. The Company must also rely to some extent on the Year 2000 readiness of other third party entities such as public utilities and governmental units. These and other like entities provide important ongoing services to the Company. Management has therefore developed and implemented contingency plans that were put in place in the second quarter, 1999. The Company's credit customers are also subject to potential losses as a result of Year 2000 exposure in their own computer systems as well as the computer systems of their suppliers and customers. The Company is working with those customers that the Company believes may be significantly affected to assess each customer's Year 2000 exposure and the extent to which the customer has addressed the problem. Any exposure which, in the opinion of management, is not adequately addressed will be taken into account in assessing the loss potential, if any, associated with that credit relationship. Forward-Looking Statements This discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its bank operate); competition for the Company's customers from other providers of financial and mortgage services; government legislation and regulation (which changes from time to time and over which the Company has no control); changes in interest rates (both generally and more specifically mortgage interest rates); material unforeseen changes in the liquidity, results of operations, or financial condition of the Company's customers; material unforeseen complications related to addressing the Year 2000 problem experienced by the Company, its suppliers, customers and governmental agencies; 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. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Asset/Liability management control is designed to ensure safety and soundness, maintain liquidity and regulatory capital standards, and achieve acceptable net interest income. Management considers interest rate risk to be the most significant market risk. The Company's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximize income. Management realizes certain risks are inherent and that the goal is to identify and minimize the risks. Tools used by management include the standard GAP model and an interest rate shock simulation model. The Bank has no market risk sensitive instruments held for trading purposes. The following table depicts the change in net interest income resulting from 100 and 300 basis point changes in rates. The projections are based on balance sheet growth assumptions and repricing opportunities for new, maturing and adjustable rate amounts. In addition, the projected percentage changes from level rates are outlined below within the Board of Directors specified limits. As of September 30, 1999 the projected percentage changes are within the Board limits and the Company's interest rate risk is also with Board limits. The projected net interest income report summarizing the Company's interest rate sensitivity as of September 30, 1999 is as follows: (in thousands) PROJECTED NET INTEREST INCOME Level Rate Change: - 300 - 100 Rates + 100 + 300 Year One (10/1/99 - 9/30/2000) Interest Income $22,017 $24,077 $25,143 $26,149 $28,222 Interest Expense 8,078 10,120 11,141 12,162 14,204 Net Interest Income $13,939 $13,957 $14,002 $13,987 $14,018 PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES" Year One (10/1/99 - 9/30/2000) Interest Income (3,126) (1,066) N/A 1,006 3,078 Interest Expense (3,063) (1,021) N/A 1,021 3,063 Net Interest Income (63) (45) N/A (15) 15 PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES" Year One (10/1/99 - 9/30/2000) Interest Income -12.4% -4.2% N/A 4.0% 12.2% Interest Expense -27.5% -9.2% N/A 9.2% 27.5% Net Interest Income -0.4% -0.3% N/A -0.1% 0.1% Limitation on % Change >-10.0% >-4.0% N/A >-4.0% >-10.0% These numbers are comparable to 1998. In 1999, year one reflected a decline in net interest income of 0.4% with a 300 basis point decline compared to the 1.8% decline in 1998. The 300 basis point increase in rates reflected a 0.1% increase in net interest income in 1999 compared to 1.9% in 1998. Percentage changes in 1999 are less than 1998 reflecting less vulnerability to drastic shifts in interest rates. Management measures the Company's interest rate risk by computing estimated changes in net interest income in the event of a range of assumed changes in market interest rates. The Company's exposure to interest rates is reviewed on a monthly basis by senior management and quarterly with the Board of Directors. Exposure to interest rate risk is measured with the use of interest rate sensitivity analysis to determine the change in net interest income in the event of hypothetical changes in interest rates, while interest rate sensitivity gap analysis is used to determine the repricing characteristics of the Company's assets and liabilities. If estimated changes to net interest income are not within the limits established by the Board, the Board may direct management to adjust the Company's asset and liability mix to bring interest rate risk within Board approved limits. In addition, the Company uses interest rate sensitivity gap analysis to monitor the relationship between the maturity and repricing of its interest-earning assets and interest- bearing liabilities, while maintaining an acceptable interest rate spread. Interest rate sensitivity gap is defined as the difference between the amount of interest- earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest-rate- sensitive assets exceeds the amount of interest-sensitive- liabilities, and is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would negatively affect net interest income. The Company's goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. The interest rate sensitivity analysis as of September 30 shown below depicts amounts based on the earliest period in which they can normally be expected to reprice. The chart reveals that assets and liabilities are fairly well matched for the early periods specified below. The 1999's numbers reflect a more negative position due to the amount of 5 year loans originated and deposits being generated, mainly with repricing opportunities of less than 2 years. The decay rates used for Demand deposits, NOW's, Savings and Money Market Savings are 5%, 30%, 20% and 30%, respectively.
(in thousands) Total 1 2 3 4 5 >5 Year Years Years Years Years Years ASSETS Cash & Due From Banks $ 12,500 $ - $ - $ - $ - $ - $ 12,500 Fed Funds & Int-Earning Due from Banks 182 182 - - - - - Variable Rate Investment 16,593 16,593 - - - - - Fixed Rate Investment 49,192 13,979 10,589 4,691 4,721 3,207 12,005 Variable Rate Loans 68,935 62,164 1,732 1,693 1,156 2,128 62 Fixed Rate Loans 158,551 40,932 21,755 33,648 35,425 24,650 2,141 Others Assets 17,188 - - - - - 17,188 Total Assets / Repricing Assets $323,141 $133,850 $ 34,076 $ 40,032 $ 41,302 $ 29,985 $ 43,896 Repricing Assets - Accumulated 133,850 167,926 207,958 249,260 279,245 323,141 % of Current Balance 41.4% 10.5% 12.4% 12.8% 9.3% 13.6% % of Current Balance - Accumulated 41.4% 52.0% 64.4% 77.1% 86.4% 100.0% Accumulated LIABILITIES Demand Deposit Accounts $ 40,490 $ 2,025 $ 1,923 $ 1,827 $ 1,736 $ 1,649 $ 31,330 NOW Accounts 53,060 15,918 11,143 7,800 5,460 3,822 8,917 Savings Accounts 14,375 2,873 2,301 1,840 1,472 1,178 4,711 Money Market Savings 9,263 2,779 1,945 1,362 953 667 1,557 Subtotal Deposit Accounts 117,188 23,595 17,312 12,829 9,621 7,316 46,515 Other Variable Deposits 7,133 7,133 - - - - - Fixed Rate Deposits 139,775 116,756 20,117 1,234 998 531 139 Variable Rate Other Liabilities 7,648 7,073 - - - - 575 Fixed Rate Other Liabilities 17,416 304 1,170 236 4,229 11,416 61 Other Liabilities 2,789 - - - - - 2,789 Total Captial 31,192 - - - - - 31,192 Total Liabilities / Repricing Liab $323,141 $154,861 $ 38,599 $ 14,299 $ 14,848 $ 19,263 $ 81,271 Repricing Liabilities - Accumulated 154,861 193,460 207,759 222,607 241,870 323,141 % of Current Balance 47.9% 11.9% 4.4% 4.6% 6.0% 25.2% % of Current Balance - Accum 47.9% 59.9% 64.3% 68.9% 74.8% 100.0% SUMMARY Total Repricing Assets $133,850 $ 34,076 $ 40,032 $ 41,302 $ 29,985 $ 43,896 Total Repricing Liabilities 154,861 38,599 14,299 14,848 19,263 81,271 Total Repricing Gap (By Bucket) (21,011) (4,523) 25,733 26,454 10,722 (37,375) Total Repricing Assets - Cumulat 298,356 133,850 167,926 207,958 249,260 279,245 323,141 Total Repricing Liabilities - Cum 290,058 154,861 193,460 207,759 222,607 241,870 323,141 Repricing Gap - Cumulative 8,298 (21,011) (25,534) 199 26,653 37,375 - Gap/Total Assets (by Bucket) -6.50% -1.40% 7.96% 8.19% 3.32% -11.57% Cumulative Gap/Total Assets -6.50% -7.90% 0.06% 8.25% 11.57% 0.00%
Part II - Other Information Item 1. Legal Proceedings The Company is not a party to any material legal proceedings. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K 1. Exhibits as required by Item 601 of Regulation S-B. 27 Financial Data Schedule 2. No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. Bourbon Bancshares, Inc. Date ___11/12/99_______ __/s/Buckner Woodford____________ Buckner Woodford, President and C.E.O. Date ___11/12/99 ______ __/s/Gregory J. Dawson___________ Gregory J. Dawson, Chief Financial Officer EX-27 2
9 1000 9-MOS DEC-31-1999 SEP-30-1999 12682 182 0 0 50378 15407 15751 227486 3053 323141 264096 7647 2789 17417 0 0 6491 24701 323141 14002 2945 260 17207 6806 7672 9535 525 1 6880 4675 4675 0 0 3371 1.20 1.18 4.34 155 505 135 0 2735 244 37 3053 3053 0 0
-----END PRIVACY-ENHANCED MESSAGE-----