-----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, Pt7igLSmhzliHFkLkbcr8k9LpanIhfpZQXoPIWwx5s84eqPJyEBBdVi7Py/HaBdY Jy/g6aOb1kclRYc4zzaOFw== 0000713095-00-000006.txt : 20000512 0000713095-00-000006.hdr.sgml : 20000512 ACCESSION NUMBER: 0000713095-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS CAPITAL BANK CORP CENTRAL INDEX KEY: 0000713095 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 611017851 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14412 FILM NUMBER: 626450 BUSINESS ADDRESS: STREET 1: PO BOX 309 STREET 2: 202 W MAIN ST CITY: FRANKFORT STATE: KY ZIP: 40602 BUSINESS PHONE: 5022271668 MAIL ADDRESS: STREET 1: P O BOX 309 STREET 2: 202 WEST MAIN STREET CITY: FRANKFORT STATE: KY ZIP: 40602 10-Q 1 FARMERS CAPITAL BANK CORPORATION 3/31/00 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 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 Number) incorporation or organization) P.O. BOX 309, 202 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 $0.125 per share 7,347,352 shares outstanding at May 10, 2000
TABLE OF TABLE OF CONTENTS Part I - Financial Information Page No. - ------------------------------ -------- Item 1 - Financial Statements Unaudited Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 3 Unaudited Consolidated Statements of Income - For the Three Months Ended March 31, 2000 and March 31, 1999 4 Unaudited Consolidated Statements of Comprehensive Income - For the Three Months Ended March 31, 2000 and March 31, 1999 5 Unaudited Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2000 and March 31, 1999 6 Unaudited Consolidated Statements of Changes in Shareholders' Equity - For the Three Months Ended March 31, 2000 and March 31, 1999 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 14 Part II - Other Information Item 1 - Legal proceedings 14 Item 6 - Exhibits and Reports on Form 8-K 15
PART I - FINANCIAL INFORMATION Item 1. Financial Statements UNAUDITED CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- March 31, December 31, (In thousands, except share data) 2000 1999 - -------------------------------------------------------------------------------- ASSETS Cash and cash equivalents: Cash and due from banks $69,356 $82,862 Interest bearing deposits in other banks 1,595 11,594 Federal funds sold and securities purchased under agreements to resell 43,430 40,904 - -------------------------------------------------------------------------------- Total cash and cash equivalents 114,381 135,360 - -------------------------------------------------------------------------------- Investment securities: Available for sale 155,372 167,944 Held to maturity 58,511 61,896 - -------------------------------------------------------------------------------- Total investment securities 213,883 229,840 - -------------------------------------------------------------------------------- Loans, net of unearned income 657,440 643,190 Allowance for loan losses (9,878) (9,659) - -------------------------------------------------------------------------------- Loans, net 647,562 633,531 - -------------------------------------------------------------------------------- Premises and equipment, net 24,167 24,409 Other assets 17,286 16,647 - -------------------------------------------------------------------------------- Total assets $1,017,279 $1,039,787 - -------------------------------------------------------------------------------- LIABILITIES Deposits: Noninterest bearing $136,732 $176,315 Interest bearing 697,733 685,905 - -------------------------------------------------------------------------------- Total deposits 834,465 862,220 - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase 40,722 41,200 Other borrowed funds 7,313 4,439 Dividends payable 2,151 2,162 Other liabilities 6,858 4,660 - -------------------------------------------------------------------------------- Total liabilities 891,509 914,681 - -------------------------------------------------------------------------------- Commitments and contingencies SHAREHOLDERS' EQUITY Common stock, par value $0.125 per share; 9,608,000 shares authorized; 7,407,429 and 7,437,792 shares issued and outstanding at March 31, 2000 and December 31, 1999, respectively 926 930 Capital surplus 11,992 11,686 Retained earnings 115,265 114,431 Accumulated other comprehensive loss (2,413) (1,941) - -------------------------------------------------------------------------------- Total shareholders' equity 125,770 125,106 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,017,279 $1,039,787 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- (In thousands, except per share data) Three months ended March 31, 2000 1999 - -------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $14,414 $13,177 Interest on investment securities: Taxable 2,254 2,337 Nontaxable 891 903 Interest on deposits in other banks 24 28 Interest on federal funds sold and securities purchased under agreements to resell 357 587 - -------------------------------------------------------------------------------- Total interest income 17,940 17,032 - -------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 6,513 6,334 Interest on other borrowed funds 568 508 - -------------------------------------------------------------------------------- Total interest expense 7,081 6,842 - -------------------------------------------------------------------------------- Net interest income 10,859 10,190 - -------------------------------------------------------------------------------- Provision for loan losses 260 194 - -------------------------------------------------------------------------------- Net interest income after provision for loan losses 10,599 9,996 - -------------------------------------------------------------------------------- NONINTEREST INCOME Service charges and fees on deposits 1,289 1,221 Other service charges, commissions, and fees 950 989 Data processing income 315 323 Trust income 362 320 Investment securities gains 3 Gain (loss) on sale of loans 4 (5) Other 144 99 - -------------------------------------------------------------------------------- Total noninterest income 3,064 2,950 - -------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 4,764 4,431 Occupancy expenses, net 560 559 Equipment expenses 675 736 Data processing expense 86 118 Bank franchise tax 285 252 Other 1,912 1,973 - -------------------------------------------------------------------------------- Total noninterest expense 8,282 8,069 - -------------------------------------------------------------------------------- Income before income taxes 5,381 4,877 - -------------------------------------------------------------------------------- Income tax expense 1,383 1,374 - -------------------------------------------------------------------------------- Net income $3,998 $3,503 - -------------------------------------------------------------------------------- NET INCOME PER COMMON SHARE Basic and diluted $.54 $.47 - -------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING Basic 7,422 7,514 Diluted 7,423 7,514 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - -------------------------------------------------------------------------------- Three months ended March 31, (In thousands) 2000 1999 - -------------------------------------------------------------------------------- NET INCOME $3,998 $3,503 Other comprehensive loss: Unrealized holding loss on available for sale securities arising during the period, net of tax of $243 and $181 in 2000 and 1999, respectively (472) (351) Reclassification adjustment for prior period unrealized gain recognized during current period, net of tax of $9 in 1999 (18) - -------------------------------------------------------------------------------- Other comprehensive loss (472) (369) - -------------------------------------------------------------------------------- COMPREHENSIVE INCOME $3,526 $3,134 - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - ---------------------------------------------------------------------------------------------------- Three months ended March 31, (In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,998 $3,503 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 653 720 Net amortization of securities premiums and discounts: Available for sale (162) (49) Held to maturity (1) 26 Provision for loan losses 260 194 Noncash compensation expense 244 231 Mortgage loans originated for sale (1,122) (7,726) Proceeds from sale of mortgage loans 752 5,806 Deferred income tax expense 25 55 (Gain) loss on sale of mortgage loans (4) 5 Gain on sale of fixed assets (2) Gain on sale of available for sale investment securities (3) Decrease in accrued interest receivable 786 122 Increase in other assets (907) (367) Increase (decrease) in accrued interest payable 135 (30) Increase in other liabilities 1,637 795 - ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities 6,292 3,282 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity or call of investment securities: Available for sale 36,654 78,426 Held to maturity 3,386 1,817 Proceeds from sale of available for sale investment securities 5,028 Purchase of available for sale investment securities (24,636) (78,177) Loans originated for investment, net of principal collected (13,917) 5,516 Purchase of premises and equipment (284) (934) Proceeds from sale of equipment 2 - ---------------------------------------------------------------------------------------------------- Net cash provided by investing activities 1,205 11,676 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (27,755) (5,176) Dividends paid (2,162) (2,113) Purchase of common stock (1,059) (482) Stock options exercised 104 7 Net increase in other borrowed funds 2,396 7,107 - ---------------------------------------------------------------------------------------------------- Net cash used in financing activities (28,476) (657) - ---------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (20,979) 14,301 - ---------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 135,360 91,834 - ---------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $114,381 $106,135 - ---------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $6,946 $6,872 Income taxes 350 Cash dividend declared and unpaid 2,151 2,103 - ---------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------------------- Accumulated Total (In thousands, except per share data) Common Stock Capital Retained Other Comprehensive Shareholders' Three months ended March 31, 2000 and 1999 Shares Amount Surplus Earnings Income (Loss) Equity - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 7,438 $930 $11,686 $114,431 $(1,941) $125,106 - ----------------------------------------------------------------------------------------------------------------------------- Net Income 3,998 3,998 Other comprehensive loss (472) (472) Cash dividends declared, $.29 per share (2,151) (2,151) Purchase of common stock (35) (5) (41) (1,013) (1,059) Stock options exercised 4 1 103 104 Noncash compensation expense attributed to stock option grants 244 244 - ----------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2000 7,407 $926 $11,992 $115,265 $(2,413) $125,770 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 7,520 $940 $10,520 $112,010 $369 $123,839 - ----------------------------------------------------------------------------------------------------------------------------- Net Income 3,503 3,503 Other comprehensive loss (369) (369) Cash dividends declared, $.28 per share (2,103) (2,103) Purchase of common stock (14) (2) (16) (464) (482) Stock options exercised 1 7 7 Noncash compensation expense attributed to stock option grants 231 231 - ----------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1999 7,507 $938 $10,742 $112,946 $0 $124,626 - ----------------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the "Company"), a bank holding company, and its subsidiaries, including its principal subsidiary, Farmers Bank & Capital Trust Co. ("Farmers Bank"). All significant intercompany transactions and accounts have been eliminated in consolidation. The Company's banking operations are considered by management to be aggregated into one reportable operating segment. 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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy. Changes in the overall interest rate environment can significantly affect the Company's net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements. The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and the footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. 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, 1999. 2. RECLASSIFICATIONS Certain reclassifications have been made to the consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications do not affect net income or shareholders' equity as previously reported. Item 2. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations ------------- FORWARD-LOOKING STATEMENTS This report contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its subsidiaries operate); competition for the Company's customers from other providers of financial services; government legislation and regulation (which changes from time to time and over which the Company has no control); changes in interest rates; material unforeseen changes in the liquidity, results of operations, or financial condition of the Company's customers; and other risks detailed in the Company's filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company. RESULTS OF OPERATIONS First Quarter 2000 vs. First Quarter 1999 ----------------------------------------- The Company reported net income of $4.0 million or $.54 per diluted share for the first quarter of 2000 compared to net income of $3.5 million or $.47 per diluted share for the first quarter of 1999. The increase in net income is primarily attributed to an increase in net interest income of $669 thousand or 6.6%. Return on average assets was 1.61% for the first quarter of 1999 compared to 1.43% reported for the same period in 1999. The increase in the return on average assets is primarily the result of a 37 basis point increase in the yield on earning assets. The increase in yield on earning assets was partially offset by a 10 basis point increase in the cost of interest bearing liabilities. An increase in the ratio of average nonearning assets to average total assets offset the increase in yield on earning assets by an additional 7 basis points. Return on average equity was 12.86% for the first quarter of 2000, an increase from 11.47% during the same period of 1999. Net Interest Income - ------------------- Net interest income totaled $10.9 million for the first quarter of 2000, an increase of $669 thousand or 6.6% compared to $10.2 million for the first quarter of 1999. Interest income was $17.9 million for the first quarter of 2000, which represents a $908 thousand or 5.3% increase compared to a year earlier. Interest expense totaled $7.1 million for the current quarter, an increase of $239 thousand or 3.5% compared to the previous year period. Interest and fees on loans, the largest component of interest income, increased $1.2 million or 9.4% to $14.4 million in the quarterly comparison. The increase resulted primarily from a $48 million or 8.0% increase in average loans. The average rate earned on loans was relatively unchanged at 8.95%. Interest on taxable securities decreased $83 thousand or 3.6% and interest on nontaxable securities decreased $12 thousand or 1.3%. The decrease in interest income on both taxable and nontaxable securities is primarily the result of a decrease in the average balances outstanding of $21.4 million for taxable securities and $6.6 million for nontaxable securities. The decrease in average outstandings offset the effect of a 56 basis point increase in the average rate earned on taxable securities and an increase of 38 basis points in the average rate earned on nontaxable securities. Interest on short term investments, including time deposits in other banks, federal funds sold, and securities purchased under agreements to resell totaled $381 thousand, which represents a decrease of $234 thousand or 38.0%. The decrease is primarily due to a $26.9 million decrease in the average balance of these investments, which offset an increase in the average rate earned. The decrease in the average balances of investment securities and temporary investments was used primarily to fund increased loan growth. Interest expense on deposits increased $179 thousand or 2.8% due primarily to an increase of $262 thousand related to interest on interest bearing demand and savings deposits. This increase resulted from an increase in the average rate paid on interest bearing demand and savings deposits in the amount of 12 basis points and 35 basis points, respectively. The increase in interest expense on interest bearing demand and savings deposits offset a slight decline in interest on time deposits of $83 thousand due to a $9.5 million decrease in the average balance. Interest expense on borrowed funds increased $60 thousand or 11.8% due primarily to an increase in the average rate paid on short term borrowings of 44 basis points. The net interest margin, on a tax equivalent basis, totaled 5.08%, an increase of 28 basis points compared to the first quarter of 1999. The increase was driven primarily by an increase in the average rates earned on earning assets of 37 basis points. The spread between rates earned and paid for the first quarter of 2000 increased 27 basis points to 4.30% compared to the same period a year earlier. Noninterest Income - ------------------ Noninterest income increased $114 thousand or 3.9% to $3.1 million for the first quarter of 2000. Service charges and fees on deposits increased $68 thousand or 5.6%. This increase was led by a $43 thousand or 7.5% increase in overdraft fees. Other service charges, commissions, and fees declined $39 thousand or 3.9% and totaled $950 thousand in the current quarter. This decrease resulted primarily from reductions in credit card merchant discounts and origination fees on loans originated for sale. Data processing income decreased $8 thousand or 2.5% due primarily to a reduction in ATM authorization fees related to volume. Trust fees increased $42 thousand or 13.1% to $362 thousand. Other noninterest income increased $51 thousand in 2000 compared to 1999 due primarily to income from Farmers Fidelity Insurance Agency, LLP ("Farmers Fidelity"). Farmers Fidelity was established in the first quarter of 2000 as a joint venture for the purpose of offering and delivery of property, casualty, selected life, health, automobile and other insurance related products. Farmers Capital Insurance Corporation, a subsidiary of Farmers Bank, has a 50% interest in Farmers Fidelity. An insurance agency not otherwise associated with the Company holds the remaining 50% interest in Farmers Fidelity. Noninterest Expense - ------------------- Total noninterest expenses increased $213 thousand or 2.6% from the first quarter of 1999 to $8.3 million. Salaries and employee benefits, the largest component of noninterest expense, increased $333 thousand or 7.5%. The increase in salaries and employee benefits is primarily attributed to an increase in the number of full time equivalent employees, which totaled 451 at March 31, 2000 compared to 437 a year earlier. Occupancy expense, net of rental income, remained relatively unchanged at $560 thousand. Equipment expenses decreased $61 thousand or 8.3% as a result of a decrease in depreciation. Data processing expense decreased $32 thousand to $86 thousand, which is primarily attributed to a decrease in credit card processing expense. Bank franchise taxes increased $33 thousand to $285 thousand. Other noninterest expenses decreased $61 thousand or 3.2% to $1.9 million for the quarter ended March 31, 2000. Income Taxes - ------------ Income tax expense for the quarter ended March 31, 2000 was $1.4 million, unchanged from the first quarter of 1999. The first quarter 2000 effective tax rate was 25.7%, a decrease of 247 basis points from the first quarter of 1999. The decrease in the effective tax rate is primarily the result of tax credits from participation in low income housing projects. FINANCIAL CONDITION Total assets were $1.0 billion on March 31, 2000, a decrease of $22.5 million or 2.2% from December 31, 1999. Total assets and deposits are affected by the relationship between Farmers Bank and the Commonwealth of Kentucky. Farmers Bank provides various services to state agencies of the Commonwealth. As the depository for the Commonwealth, these agencies issue checks drawn on Farmers Bank, including paychecks and state income tax refunds. Farmers Bank also processes vouchers for the WIC (Women, Infants and Children) program for the Cabinet for Human Resources. Farmers Bank's investment department provides service to both the Kentucky Retirement and Teacher's Retirement Systems. As the depository for the Commonwealth, large fluctuations in deposits are likely to occur on a daily basis. Farmers Bank received a significant deposit from the Commonwealth at year end 1999. Total assets averaged $994 million for the first quarter of 2000, an increase of $4.8 million or less than 1% from year end 1999. Loans - ----- Loans, net of unearned income, increased $14.3 million or 2.2% from December 31, 1999 to $657 million. The increase in loans is attributed to a $13.5 million or 3.5% increase in real estate mortgage loans and a $5.9 million or 15.3% increase in real estate construction loans. These increases offset declines in other lending of $5.1 million or 2.4%. Average loans, net of unearned income, increased $30.4 million or 4.9%. On average, loans represented 73% of earning assets compared to 69% at year end 1999. As loan demand fluctuates, the available funds are redirected between either temporary investments or investment securities. Allowance for Loan Losses - ------------------------- The allowance for loan losses was $9.9 million on March 31, 2000, a decrease of $219 thousand from year end 1999. The allowance for loan losses was 1.5% of net loans at March 31, 2000 and December 31, 1999. The provision for loan losses was $260 thousand for the current quarter, an increase of $66 thousand compared to the same period in 1999. The Company recorded net charge-offs of $41 thousand in the first quarter of 2000 compared to $212 thousand in the first quarter of 1999. Management continues to emphasize collection efforts and evaluation of risks within the portfolio. Nonperforming Assets - -------------------- Nonperforming assets for the Company include nonperforming loans, other real estate owned, and other foreclosed assets. Nonperforming loans consist of nonaccrual loans, loans past due ninety days or more on which interest is still accruing, and restructured loans. Nonperforming assets totaled $6.0 million on March 31, 2000, an increase of $291 thousand or 5.1% from year end 1999. The increase in nonperforming assets is primarily the result of a $152 thousand or 7.2% increase in loans past due 90 days or more and a $115 thousand increase in other foreclosed assets. Nonperforming assets to total equity increased from 4.6% at year end 1999 to 4.8% at March 31, 2000. Nonperforming loans as a percentage of net loans remained unchanged at .76% compared to year end 1999. Other real estate owned was $735 thousand on March 31, 2000, relatively unchanged from year end 1999. Temporary Investments - --------------------- Time deposits with banks, federal funds sold and securities purchased under agreements to resell averaged $24.4 million, a decrease of $6.5 million or 21.1% from year end 1999. The decrease in temporary investments helped to fund the increase in loan demand. Investment Securities - --------------------- Investment securities were $214 million on March 31, 2000, a decrease of $16.0 million or 6.9% from year end 1999. The decrease is primarily attributable to decreases in the available for sale portfolio of $12.6 million. Mortgage-backed securities and U.S. Government Agency obligations in the available for sale portfolio decreased $9.1 million and $5.0 million, respectively, in the comparison while investment in equity securities increased $2.6 million. Investment securities averaged $222 million for the first quarter of 2000, a decrease $24.6 million or 10.0% from year end 1999. The decrease in investment securities was used to help fund loan growth. The net unrealized loss on available for sale investment securities, included as a component of shareholders' equity, was $2.4 million on March 31, 2000. Deposits - -------- Total deposits decreased $27.8 million or 3.2%, from year end 1999 to $834 million. Noninterest bearing deposits decreased $39.6 million or 22.5% while interest bearing deposits increased $11.8 million or 1.7%. The decrease in noninterest bearing deposits is primarily the result of increased deposits at year end 1999 resulting from a significant deposit received from the Commonwealth of Kentucky at year end. Deposits averaged $820 million, an increase of $5.9 million or 1.0% from year end 1999. Borrowed Funds - -------------- Borrowed funds totaled $48.0 million, an increase of $2.4 million or 5.2% from year end 1999. The increase is due primarily to an increase in borrowed funds from the Federal Home Loan Bank of Cincinnati. These funds are used to support loan demand. Borrowed funds averaged $42.0 million for the first quarter of 2000, an increase of $733 thousand or 1.8%. LIQUIDITY The liquidity of the Parent Company is primarily affected by the receipt of dividends from its subsidiary banks and cash balances maintained. As of March 31, 2000 combined retained earnings of the subsidiary banks were $56.0 million, of which $19.0 million was available for the payment of dividends to the Parent Company without obtaining prior approval from bank regulatory agencies. As a practical matter, payment of future dividends is also subject to the maintenance of other capital ratio requirements. Management expects that in the aggregate its subsidiary banks will continue to have the ability to dividend adequate funds to the Parent Company during the remainder of 2000. The Parent Company had cash balances of $25.6 million on March 31, 2000. The Company'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 that can be used for liquidity purposes. Those sources of funds include the subsidiary banks' core deposits, consisting of both business and nonbusiness deposits; cash flow generated by repayment of loan principal and interest; and federal funds purchased and securities sold under agreements to repurchase. For the longer term, the liquidity position is managed by balancing the maturity structure of the balance sheet. This process allows for an orderly flow of funds over an extended period of time. Liquid assets consist of cash, cash equivalents, and available for sale investment securities. At March 31, 2000, such assets totaled $270 million, a decrease of $33.6 million from year end 1999. Net cash provided by operating activities totaled $6.3 million for the first quarter of 2000, an increase of $3.0 million compared to the same quarter last year. This increase is primarily due to a decrease in net mortgage loans originated for sale of $1.6 million in the quarterly comparison. Net cash provided by investing activities was $1.2 million for the current quarter, a decrease of $10.5 million. This decrease is primarily a result of a $19.4 increase in net loans originated for investment, which was partially offset by a net increase in cash flows from securities transactions of $8.3 million. Net cash used in financing activities was $28.5 million for the period ended March 31, 2000 compared to $657 thousand in the same period in 1999. The increase is primarily attributed to a $22.6 million decrease in net cash used related to deposits for the first quarter of 2000 compared to the first quarter of 1999. CAPITAL RESOURCES Shareholders' equity was $126 million on March 31, 2000, an increase of $664 thousand from year end 1999. The Company purchased 35 thousand shares of its outstanding common stock during the first quarter of 2000 for a total cost of $1.1 million. The Company issued 4 thousand shares of common stock during the first quarter pursuant to its nonqualified employee stock option plan. Dividends of $2.2 million or $.29 per share were declared during the first quarter of 2000. This represents a per share increase of 2.7% on an annualized basis compared to the twelve months ended December 31, 1999. Consistent with the objective of operating a sound financial organization, the Company's goal is to maintain capital ratios well above the regulatory requirements. The Company's capital ratios as of March 31, 2000, the regulatory minimums and the regulatory standard for a "well capitalized" institution are as follows: Farmers Capital Regulatory Well Bank Corporation Minimum Capitalized - -------------------------------------------------------------------------------- Tier 1 risk based 18.74% 4.00% 6.00% Total risk based 19.99% 8.00% 10.00% Leverage 12.84% 4.00% 5.00% The capital ratios of all the subsidiary banks, on an individual basis, were in excess of the applicable minimum regulatory capital ratio requirements at March 31, 2000. Item 3. Quantitative and Qualitative Disclosures About Market Risk - -------------------------------------------------------------------- There have been no material changes in the Company's market risk from December 31, 1999. For information regarding the Company's market risk, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. PART II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- In September 1992, Farmers Bank was named as a defendant in Case No. 92CI05734 in Jefferson Circuit Court, Louisville, Kentucky, in a case styled SCHILLING, ET AL. V. FARMERS BANK & CAPITAL TRUST COMPANY. The named plaintiffs purported to represent a class consisting of all present and former owners of the County of Jefferson, Kentucky, Nursing Home Refunding Revenue Bonds (Filson Care Home Project) Series 1986A and County of Jefferson, Kentucky, Nursing Home Improvement Revenue Bonds (Filson Care Home Project) Series 1986B (collectively "the Bonds"). The plaintiffs alleged that the class had been damaged through a reduction in the value of the Bonds and a loss of interest on the Bonds because of the actions of Farmers Bank in its capacity as indenture trustee for the Bondholders. The plaintiffs demanded compensatory and punitive damages. On July 6, 1993, the Court denied the plaintiffs' motion to certify the case as a class action. Subsequently, the plaintiffs amended their complaint to join additional Bondholders as plaintiffs. The plaintiffs claimed to hold Bonds in the aggregate principal amount of $480,000. Before trial, the Court dismissed thirty-nine of the plaintiffs because they were unable or unwilling to present testimony to support their claims. The case was tried to a jury beginning on March 28, 2000 on the claims of four plaintiffs holding Bonds in the aggregate principal amount of $80,000. The Court granted a directed verdict in favor of Farmers Bank on the plaintiffs' claim that Farmers Bank had engaged in commercial bribery and that the legal fees that were paid by Farmers Bank should be disgorged because of an alleged conflict of interest of Farmers Bank's counsel. The jury found for the plaintiffs on the claim that Farmers Bank had breached its fiduciary duty and awarded the plaintiffs $99,875 in compensatory damages and $600,000 in punitive damages. Farmers Bank has filed a motion for judgment notwithstanding the verdict or, in the alternative, for a new trial, asserting that the jury's verdict that Farmers Bank breached its fiduciary duty was not supported by sufficient evidence, that the jury's award of damages was speculative and was not supported by the evidence, and that the jury's award of punitive damages was not supported by sufficient evidence. Farmers Bank has also asserted that a new trial is warranted because of the erroneous admission of evidence concerning legal fees paid by Farmers Bank. Plaintiffs have filed appeals contending that the denial of class certification was erroneous, that the individual plaintiffs should not have been dismissed from the lawsuit, that certain evidence was erroneously excluded, and that the directed verdict regarding the disgorgement of legal fees and the commercial bribery claims was erroneous. Farmers Bank intends to vigorously pursue its pending motion for judgment notwithstanding the verdict or, in the alternative, for a new trial, or, in the event the trial court denies the motion, to appeal the trial court's judgment to the Kentucky Court of Appeals. It is not possible at this stage of the proceedings to make any prediction as to the outcome. As of March 31, 2000, there were various other pending legal actions and proceedings against the Company arising from the normal course of business and in which claims for damages are asserted. Management, after discussion with legal counsel, believes that these actions are without merit and that the ultimate liability resulting from these legal actions and proceedings, if any, will not have a material adverse effect upon the consolidated financial statements of the Company. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a) List of Exhibits ---------------- 11 Statement re computation of per share earnings 27 Financial data schedule (for SEC use only) b) Reports on Form 8-K ------------------- There were no reports on Form 8-K filed during the fiscal quarter. 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: 5/11/00 /s/ James H. Childers -------------------- -------------------------------------------- James H. Childers Executive Vice President, Secretary and General Counsel Date: 5/11/00 /s/ C Douglas Carpenter -------------------- -------------------------------------------- Cecil Douglas Carpenter Vice President and CFO (Principal Financial and Accounting Officer) Exhibit 11 Statement re computation of per share earnings - ------------------------------------------------------------------------------- (In thousands, except per share data) Three months ended March 31, 2000 1999 - ------------------------------------------------------------------------------- Net income, basic and diluted $ 3,998 $ 3,503 - ------------------------------------------------------------------------------- Average shares outstanding - basic 7,422 7,514 Effect of dilutive stock options 1 - ------------------------------------------------------------------------------- Average shares outstanding - diluted 7,423 7,514 - ------------------------------------------------------------------------------- Net income per common share, basic and diluted $ 0.54 $ 0.47 - ------------------------------------------------------------------------------- EX-27 2 FDS 3/31/00
9 This schedule contains summary financial information extrated from the March 31, 2000 financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 69,356 1,595 43,430 0 155,372 58,511 58,125 657,440 9,878 1,017,279 834,465 41,483 15,561 6,552 0 0 926 124,844 1,017,279 14,414 3,145 381 17,940 6,513 7,081 10,859 260 0 8,282 5,381 5,381 0 0 3,998 0.54 0.54 5.08 2,790 2,254 0 0 9,659 296 255 9,878 9,878 0 0
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