-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sGgiK7oTa0ZA6h5HD9d7scLQHcOaJf0UX4qRWsB/o0SGE9PD4VTc5PeV5OISQgvf VRFczJpJqpMdJQPkuRifKA== 0000713095-94-000015.txt : 19941122 0000713095-94-000015.hdr.sgml : 19941122 ACCESSION NUMBER: 0000713095-94-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS CAPITAL BANK CORP CENTRAL INDEX KEY: 0000713095 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 611017851 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14412 FILM NUMBER: 94559238 BUSINESS ADDRESS: STREET 1: W MAIN ST PO BOX 309 STREET 2: ONE FARMERS BANK PLZ CITY: FRANKFORT STATE: KY ZIP: 40602 BUSINESS PHONE: 5021171600 MAIL ADDRESS: STREET 1: P O BOX 309 STREET 2: WEST MAIN STREET CITY: FRANKFORT STATE: KY ZIP: 40602 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 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 0-14412 Farmers Capital Bank Corporation (Exact name of registrant as specified in its charter) Kentucky 61-1017851 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P.O. Box 309, West Main Street Frankfort, Kentucky 40602 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502)227-1600 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, par value $0.25 per share 3,866,382 shares outstanding at November 10, 1994 TABLE OF CONTENTS Part I - Financial Information Page No. Item 1 - Financial Statements Consolidated Balance Sheets September 30, 1994 and December 31, 1993 3 Consolidated Statements of Income - For the Nine Months Ended September 30, 1994 and September 30, 1993 4 Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 1994 and September 30, 1993 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II - Other Information Item 4 - Results of votes of security holders 13 Item 5 - Other information 14 Item 6(b) - Reports on Form 8-K 14 FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share data) (unaudited) September 30, December 31, 1994 1993 ASSETS Cash and cash equivalents: Cash and due from banks $ 61,951 $ 43,171 Federal Funds sold and securities purchased under agreement to resell 44,950 54,613 Total cash and cash equivalents 106,901 97,784 Investment securities 184,060 188,866 Loans and lease financings 534,794 490,345 Less: Allowance for loan losses (9,106) (8,547) Unearned income (11,035) (8,708) Net loans and lease financings 514,653 473,090 Bank premises and equipment 19,729 20,504 Interest receivable 6,367 6,420 Other assets 6,843 7,605 TOTAL ASSETS $838,553 $794,269 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $120,633 $ 92,128 Interest bearing 578,205 566,111 Total deposits 698,838 658,239 Other borrowed funds 34,897 35,332 Dividends payable 1,160 1,160 Interest payable 1,439 1,475 Other liabilities 3,574 2,972 Total liabilities 739,908 699,178 SHAREHOLDERS' EQUITY Common stock, par value $.25 per share 4,804,000 shares authorized; 3,866,382 shares issued and outstanding at September 30, 1994 and December 31, 1993 967 967 Capital surplus 9,094 9,094 Retained earnings 88,942 85,030 Unrealized net loss on securities available for sale (358) Total shareholders' equity 98,645 95,091 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $838,553 $794,269 See notes to consolidated financial statements FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (unaudited) Quarter Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 INTEREST INCOME Interest and fees on loans $11,955 $10,821 $34,095 $32,062 Interest on investment securities: Taxable 1,524 1,750 4,487 5,859 Nontaxable 586 432 1,716 1,060 Interest on deposits in other banks 13 13 38 32 Interest on federal funds sold and securities purchased under agreements to resell 687 531 1,646 1,773 Total interest income 14,765 13,547 41,982 40,786 INTEREST EXPENSE Interest on deposits 5,116 5,073 14,678 15,817 Interest on federal funds purchased and securities sold under agreements to repurchase 373 252 863 647 Other 57 39 144 113 Total interest expense 5,546 5,364 15,685 16,577 Net interest income 9,219 8,183 26,297 24,209 Provision for loan losses 498 (4,634) 1,564 (2,794) Net interest income after provision for loan losses 8,721 12,817 24,733 27,003 NONINTEREST INCOME Service charges and fees 1,060 1,111 2,991 3,252 Trust income 222 251 796 723 Investment securities gains (losses) 9 (75) 60 Other 1,517 1,245 4,924 3,993 Total noninterest income 2,799 2,616 8,636 8,028 NONINTEREST EXPENSE Salaries and employee benefits 4,048 3,840 11,702 11,176 Occupancy expenses, net of rental income 496 482 1,536 1,468 Equipment expense 581 659 1,847 2,000 Bank shares tax 297 235 826 707 FDIC insurance 384 398 1,133 1,189 Other 2,077 1,734 5,817 5,588 Total noninterest expense 7,883 7,348 22,861 22,128 Income before income taxes and cumulative effect of change in accounting principle 3,637 8,085 10,508 12,903 Income tax expense 1,059 2,720 3,116 4,126 Income before cumulative effect of change in accounting principle 2,578 5,365 7,392 8,777 Cumulative effect of change in accounting principle 380 NET INCOME $ 2,578 $ 5,365 $ 7,392 $ 9,157 Per common share: Income before cumulative change in accounting principle $.67 $1.39 $1.91 $2.27 Cumulative effect of change in accounting principle .10 Net income $.67 $1.39 $1.91 $2.37 Dividends declared $.30 $.27 $.90 $.81 Weighted average shares outstanding 3,866 3,866 3,866 3,866 See notes to consolidated financial statements FARMERS CAPITAL BANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (unaudited) Nine Months Ended September 30, 1994 1993 Cash flows from operating activities Net Income $ 7,392 $ 9,157 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,869 1,717 Net amortization of investment securities premiums and discounts: Available for sale 141 Held to maturity 242 738 Provision for loan losses 1,564 (2,794) Deferred income tax (10) (309) Loss (gain) on sale of fixed assets 2 (1) Loss (gain) on sale of securities: Available for sale 78 Held to maturity (3) (60) Changes in: Interest receivable 53 128 Other assets 531 2,849 Interest payable (36) (338) Other liabilities 602 4,776 Net cash provided by operating activities 12,425 15,863 Cash flows from investing activities Proceeds from maturity of investment securities: Available for sale 52,237 Held to maturity 20,711 57,580 Proceeds from sale of investment securities: Available for sale 11,603 Held to maturity 8,998 Purchase of investment securities: Available for sale (49,991) Held to maturity (30,753) (78,279) Net increase in loans (43,127) (13,074) Purchase of bank premises and equipment (673) (957) Proceeds from sale of equipment 1 16 Net cash used in investing activities (39,992) (25,716) Cash flows from financing activities: Net increase (decrease) in deposits 40,599 (9,736) Dividends paid (3,480) (3,144) Net decrease in other borrowed funds (435) (5,831) Decrease in debt (3,775) Net cash provided by (used in) financing activities 36,684 (22,486) Net change in cash and cash equivalents 9,117 (32,339) Cash and cash equivalents at beginning of year 97,784 166,001 Cash and cash equivalents at end of period $106,901 $133,662 Supplemental disclosures: Cash paid during the year for: Interest $ 15,721 $ 16,239 Income taxes 3,155 2,387 See notes to consolidated financial statements FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the period ended September 30, 1994 are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1993. NOTE 2 - BOND CLAIM During 1991, First Citizens Bank, Hardin County (the "Bank"), a subsidiary of the Company, filed a bond claim for $6,800,000 with its bonding company to recover losses incurred in 1990 resulting from an apparent scheme to defraud the Bank. After exhaustive efforts to settle the claim with the bonding company, the Bank initiated litigation during the first quarter of 1992 against the bonding company. During the third quarter of 1993, the Company reached a settlement in the amount of $5,279,000 which was accounted for as a loan loss recovery. Loan loss recoveries result in an increase in the Allowance for Loan Losses (Allowance). The Allowance was subsequently adjusted to the amount necessary, as determined by management, to absorb possible future losses on the total loans currently outstanding. The adjustment resulted in a reduction in the provision for loan losses to the extent that the provision for the year was negative. NOTE 3 - SFAS NO. 114 In May 1993, the FASB issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114"), which addresses the accounting by creditors for impairment of a loan by specifying how allowances for credit losses related to certain loans should be determined. This Statement also addresses the accounting by creditors for all loans that are restructured in a troubled debt restructuring involving a modification of terms of a receivable. An impaired loan shall be measured by the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependant. If the measure of of the impaired loan is less that the recorded investment, an impairment will be recognized by creating a valuation allowance with a corresponding charge to bad debt expense. SFAS 114 shall be effective for fiscal years beginning after December 15, 1994. The impact on the financial statements is not known at this time. NOTE 4 - INVESTMENT SECURITIES Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Accordingly, debt securities where the company does not have the positive intent or ability to hold to maturity are classified as securities available for sale and are carried at market value. Unrealized gains and losses on securities available for sale are reported as a separate component of shareholders' equity, net of tax effect. Prior to the adoption of this statement, securities were carried at amortized cost. The following summarizes the amortized cost and estimated fair values of the securities portfolio at September 30, 1994. The summary is divided into available for sale and held to maturity securities. Investment securities - available for sale (In thousand) Gross Gross Estimated Amortized Unrealized Unrealized Fair September 30, 1994 Cost Gains Losses Value U.S. Treasury $12,991 $ 8 $152 $12,847 Obligations of U.S. Government agencies 47,206 2 407 46,801 Mortgage-backed Securities 3,996 6 1 14,001 Other securities 3,629 3,629 Total securities available for sale $67,822 $16 $560 $67,278 Investment securities - held to maturity (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair September 30, 1994 Cost Gains Losses Value U.S. Treasury $ 44,578 $ 10 $ 505 $ 44,083 Obligations of U.S. Government agencies 18,186 18 784 17,420 Obligations of states and political subdivisions 50,184 533 1,249 49,468 Mortgage-backed securities 2,123 149 1,974 Other securities 1,711 7 36 1,682 Total securities held to maturity $116,782 $568 $2,723 $114,627 The following summarizes the amortized cost and estimated fair values of the securities portfolio at December 31, 1993. On December 31, 1993, the securities were carried at amortized cost. (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 1993 Cost Gains Losses Value U.S. Treasury $ 67,355 $ 431 $ 32 $ 67,754 Obligations of U.S. Government agencies 68,529 215 60 68,684 Obligations of states and political subdivisions 46,081 1,098 220 46,959 Mortgage-backed securities 5,792 12 46 5,758 Other securities 1,109 26 1,135 Total securities $188,866 $1,782 $358 $190,290 5. NONRECURRING EVENT Net income increased by $503,000 during the first nine months of 1994 due to a non-recurring recovery of prior year losses. This recovery occurred in the second quarter. FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER 1994 VS. THIRD QUARTER 1993 The Company reported earnings of $2.6 million, or $.67 per share, for the third quarter of 1994 compared to $5.4 million, or $1.39 per share one year ago. During the third quarter of 1993, the Company reached a bond claim settlement which resulted in a $3.5 million increase of net income. Adjusting the third quarter of 1993 for this item, net income would be $1.9 million, or $ .49 per share. Return on average assets and return on average equity for the third quarter of 1994 were 1.22% and 10.53%, respectively, compared to 2.63% and 23.00% for the same period in 1993. After adjusting the third quarter of 1993 for the bond claim settlement, third quarter 1994 return on average assets and return on average equity actually increased by 30 and 253 basis points, respectively. Return on average assets and return on average equity for the third quarter of 1993 after the adjustment, were .92% and 8.00%, respectively. Net Interest Income Net interest income totaled $9.2 million for the third quarter of 1994, compared to $8.2 million one year ago. The net interest margin (net interest income as a percentage of average earning assets), increased to 5.08% compared to 4.76% a year ago while the spread between rates earned and paid increased to 4.49% from 4.22%. Asset Quality The provision for loan losses increased $5.1 million compared to the third quarter of 1993. This increase is primarily a result of the bond claim settlement, which subsequently resulted in a negative provision for loan losses for the period. The settlement increased the Allowance for Loan Losses (Allowance) by an amount management felt exceeded the amount necessary to absorb possible future loan losses. Management subsequently reduced the Allowance balance to the amount necessary to absorb possible future losses on the total loans outstanding at that time, thus the resultant negative provision. Excluding the bond claim settlement, the provision for loan losses actually decreased $147 thousand, or 23% during the period. The Corporation had net charge-offs of $502 thousand during the quarter compared to net charge-offs of $428 thousand during the same time period in 1993. Management continues to emphasize collection efforts and evaluation of the risks within the loan portfolio. Noninterest Income Noninterest income of $2.8 million increased $183 thousand, or 7.0%, from the third quarter of last year. Service charges on deposits decreased $51 thousand, or 4.6%. Trust fees decreased $29 thousand, or 11.6%. Other income increased $272 thousand as compared to the same time period in 1993, this variance consists of several different items. Noninterest Expense Total noninterest expense increased $535 thousand, or 7.3% from the third quarter of last year. Salaries and benefits, the largest component, increased $208 thousand, or 5.4%. Occupancy expense, net of rental income, increased $14 thousand, or 2.9%. FDIC insurance premiums increased $14 thousand to $384 thousand. Taxes on bank shares increased $62 thousand to $297 thousand. Equipment expense decreased $78 thousand, or 11.8%. Income taxes Income tax expense decreased $1.6 million, or 61.1% from the same time period last year. The change in income tax expense is mostly attributable to the decrease in income before taxes of $4.4 million, or 55.0%. The 1994 effective rate is 29% compared to 34% in 1993. The 1993 rate was greatly affected by the bond claim settlement. FIRST NINE MONTHS OF 1994 Net income for the nine months was $7.4 million, or $1.91 per share compared to $9.2 million, or $2.37 per share for the same time period in 1993. Return on average assets was 1.17%, a decrease from 1.50% in 1993. Return on average equity was 10.22%, a decrease from 13.44% in 1993. Net income after taxes was affected by the following items during the first nine months of 1993 and 1994: A nonrecurring recovery of prior year losses increased 1994 net income by $503 thousand. The Company reached a bond claim settlement which increased 1993 net income by $3.5 million. The adoption of SFAS 109 - Accounting for Income Taxes increased 1993 net income by $380 thousand. Adjusting each year by the items mentioned above, net income would be $6.9 million, or $1.78 per share in 1994, and $5.3 million, or $1.38 per share in 1993. After the adjustments, 1994 return on average assets and return on average equity would be 1.09% and 9.52%, respectively compared to .86% and 9.52% for 1993. Net Interest Income Net interest income for the first nine months totalled $26.3 million, compared to $24.2 million last year. The majority of the increase can be primarily attributed to the following: A $2.0 million increase in loan interest A $1.1 million decrease in interest expense on deposits A $716 thousand decrease in interest on securities The net interest margin increased to 4.94% compared to 4.66% in 1993. The spread between rates earned and paid increased to 4.38% compared to 4.14% in 1993. Asset Quality The provision for loan losses increased $4.4 million, as compared to the first nine months of 1993. This increase is primarily a result of the accounting for the 1993 bond claim settlement, which subsequently resulted in a negative provision for loan losses for that period in 1993. The settlement increased the Allowance for Loan Losses (Allowance) by an amount management felt exceeded the amount necessary to absorb possible future loan losses. Management subsequently reduced the Allowance balance to the amount necessary to absorb possible future losses on the total loans outstanding at that time, thus the resultant negative provision.. Excluding the bond claim settlement, the provision for loan losses actually decreased $921 thousand, or 37%. The Corporation had net charge-offs of $1.1 million compared to net recoveries of $2.8 million for the first nine months of 1993. Again, net recoveries in 1993 are primarily attributable to the bond claim settlement. The allowance for loan losses was 1.70% of loans, net of unearned income, at September 30, 1994, a small decline from 1.77% at year end. Management feels the current reserve is adequate to cover any potential future losses within the loan portfolio. Noninterest Income Noninterest income for the nine months ended September 30, 1994 totalled $8.6 million, an increase of $608 thousand, or 7.6%, from the first nine months of 1993. In comparing the first nine months of 1994 to the same period in 1993, service charges decreased $261 thousand, or 8.0%, and trust fees increased $73 thousand, or 10.1%. The corporation had $75 thousand in investment losses during the first nine months of 1994 compared to a net gain of $60 thousand during the same period in 1993. Other income for the first nine months of 1994 increased $931 thousand from the same period of 1993, $611 thousand of this increase was due to the nonrecurring recovery. Noninterest Expense Noninterest expense for the first nine months of 1994 totalled $22.9 million an increase of $733, or 3.3%. In comparing the first nine months of 1994 to the same period in 1993, salary and employee benefits increased $526 thousand, or 4.7%, occupancy expense (net of rental income) increased $68 thousand, or 4.6%, FDIC insurance premiums decreased $56 thousand, or 4.7%, taxes on bank shares increased $119 thousand, or 16.8%, and other real estate expenses (net) increased $214 thousand. The increase in other real estate expense can be primarily attributed to a decrease in rental income from other real estate. Income Taxes Income tax expense for the first nine months of 1994 decreased $1.0 million, or 26.5%. This decrease can be directly attributed to the decrease in income before taxes. The 1994 effective rate is 30% compared to 32% in 1993. The bond claim settlement caused the higher rate for 1993. BALANCE SHEET REVIEW Total assets were $839 million on September 30, 1994, an increase of $44 million or 5.6% from December 31, 1993. Assets averaged $839 million for the first nine months of 1994, an increase of $25 million, or 3.1% from year end 1993. Loans Loans, net of unearned income, increased $42 million, or 8.7% from December 31, 1993 to $524 million. On average loans, net of unearned income, represented 67.8% of average earning assets compared to 63.6% for 1993. The increase can be attributed to growing loan demand from both the consumer and commercial markets. Temporary Investments Federal funds sold and securities purchased under agreement to resell averaged $57 million, a decrease of $19 million, or 25.0%, from year end 1993. The funds are being used to fund loan growth. Investment Securities Investment securities were $184 million on September 30, 1994, a decrease of $5 million, or 2.5%, from year end 1993. Available for sale and held to maturity securities were $67 and $117 million, respectively. Investment securities averaged $178 million for the nine months ended September 30, 1994, an increase of $7 million, or 4.1%, from year end 1993. Net unrealized losses after tax on available for sale securities was $358 thousand on September 30, 1994. Nonperforming assets Other real estate owned decreased $835 thousand, or 71.4%, from year end 1993 to $334 thousand on September 30, 1994. Nonperforming assets totaled $9.6 million on September 30, 1994, an increase of $1.9 million from year end 1993. The chart below shows the change in nonperforming assets by type: (In thousands) September 30, December 31, 1994 1993 past due 90 days or more $2,184 $1,402 Non-accrual loans 3,474 1,565 Restructured loans 3,570 3,734 Other real estate owned 334 1,169 Total $9,562 $7,870 Nonperforming assets to total equity increased 142 basis points from year end 1993 to 9.69%. Nonperforming assets as a percentage of loans and other real estate were 1.1% on September 30, 1994, a decrease of 50 basis points from year end 1993. While in the past nine months total nonperforming assets have increased, the performance over the past two years has been much better. Since 1991, nonperforming assets have decreased $13 million and the percentage of nonperforming assets to loans and other real estate has decreased 360 basis points. This trend is a result of management's continued efforts to improve the quality of the loan portfolio. The Corporation's loan policy includes strict guidelines for approving and monitoring loans. These efforts have resulted in the declining trend of nonperforming assets over the past four years. Management will continue these same efforts in the future. Deposits Total deposits increased $41 million, or 6.2%, from year end 1993 to $699 million. Deposits averaged $699 million, an increase of $13 million from year end 1993. Borrowed Funds Borrowed funds totaled $35 million, a decrease of $435 thousand from year end 1993. Borrowed funds averaged $37 million, an increase of $5 million, or 15.6%. Shareholder's Equity Shareholders equity was $98.6 million on September 30, 1994, increasing $3.6 million from year end 1993. Dividends of $3.5 million were declared during the first nine months of 1994. The Corporation's capital ratios as of September 30, 1994 and the regulatory minimums are as follows: Farmers Capital Regulatory Bank Corporation Minimum Tier 1 risk based 16.35% 4.00% Total risk based 17.60% 8.00% Leverage 11.24% 3.00% The capital ratios of all the subsidiary banks were in excess of the applicable minimum regulatory capital ratio requirements at September 30, 1994. Accounting Requirements In May 1993, the FASB issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114"), which addresses the accounting by creditors for impairment of a loan by specifying how allowances for credit losses related to certain loans should be determined. This Statement also addresses the accounting by creditors for all loans that are restructured in a troubled debt restructuring involving a modification of terms of a receivable. An impaired loan shall be measured by the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment, an impairment will be recognized by creating a valuation allowance with a corresponding charge to bad debt expense. SFAS 114 will be effective for fiscal years beginning after December 15, 1994. The impact on the financial statements is not known at this time. Liquidity The liquidity of the Corporation is dependent on the receipt of dividends from its subsidiary banks. Management expects that in the aggregate its subsidiary banks will continue to have the ability to dividend adequate funds to the Corporation during the remainder of 1994. The Corporation's objective as it relates to liquidity is to insure that subsidiary banks have funds available to meet deposit withdrawals and credit demands without unduly penalizing profitability. In order to maintain a proper level of liquidity, the banks have several sources of funds available on a daily basis which can be used for liquidity purposes. These sources of funds are: The bank's core deposits consisting of both business and nonbusiness deposits Cash flow generated by repayment of loan principal and interest Federal funds Liquidity projections are reviewed on a monthly basis and it is rare for a bank to call on the third source of funds to meet liquidity requirements. Generally, sources one and two are sufficient. For the longer term, the liquidity position is managed by balancing the maturity structure of the balance sheet. This process allows for an orderly flow of funds over an extended period of time. ITEM 4 - RESULTS OF VOTE OF SECURITY HOLDERS The annual meeting of shareholders was held May 10, 1994. The matters that were voted upon included: A. The election of three directors for three-year terms ending 1997, or until their successors have been elected and qualified. B. The ratification of the appointment of Coopers & Lybrand as independent accountants for the Corporation and its subsidiaries for the calendar year 1994. The outcome of the voting is as follows: NAME FOR AGAINST WITHHELD ABSTAINED Charles S. Boyd 3,405,590 200 460,592 0 Dr. John D. Sutterlin 3,405,690 100 460,592 0 Joseph C. Yagel, Jr. 3,402,685 3,105 460,592 0 Ratification of the appointment of Coopers & Lybrand 3,222,639 5,176 460,592 177,975 Listed below is the name of each director whose term of office continued after the meeting: Dr. John P. Stewart Warner U. Hines Charles S. Boyd John J. Hopkins E. Bruce Dungan Dr. John D. Sutterlin William R. Sykes Joseph C. Yagel, Jr. Michael M. Sullivan Charles O. Bush In addition to the directors listed above, Frank Sower and Charles T. Mitchell serve as Advisory Directors for the Corporation. ITEM 5 - OTHER INFORMATION On October 27, 1994, the Corporation announced an increase in their quarterly dividend from thirty cents per share to thirty-three cents per share, which represents an increase of 10%. Holders of record of the Corporation's stock as of December 1, 1994 will be paid on January 1, 1995. The action to increase the dividend was taken at the Board of Director's meeting on October 25, 1994. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (b) Reports on Form 8-K On April 19, 1994, the Corporation filed a report on Form 8-K with the Commission to report that they had recovered an additional $758,000 of the losses incurred from an apparent scheme in 1990 to defraud First Citizens Bank, Hardin County, a subsidiary of the Corporation. The Corporation intends to pursue other related claims. 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 thereunto duly authorized. Date: 11-14-94 Charles S. Boyd Charles Scott Boyd, President and CEO Date: 11-14-94 C. Douglas Carpenter Cecil Douglas Carpenter Vice President, Principal Financial and Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----