-----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, HrZtbe/bWssY4vuMJSy7PhTHklA1ePJUku6v8EqBwFsjKpjv3nNt2n/j6C6+qV6Z QWiKPG4XZbINuN8J7KT+eQ== /in/edgar/work/0000713095-00-000010/0000713095-00-000010.txt : 20001110 0000713095-00-000010.hdr.sgml : 20001110 ACCESSION NUMBER: 0000713095-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS CAPITAL BANK CORP CENTRAL INDEX KEY: 0000713095 STANDARD INDUSTRIAL CLASSIFICATION: [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: 757167 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 0001.txt FARMERS CAPITAL BANK CORPORATION 9/30/00 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 September 30, 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 7,184,176 shares outstanding at November 1, 2000
TABLE OF CONTENTS Part I - Financial Information Page No. - ------------------------------ -------- Item 1 - Financial Statements Unaudited Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 3 Unaudited Consolidated Statements of Income - For the Three Months and Nine Months Ended September 30, 2000 and September 30, 1999 4 Unaudited Consolidated Statements of Comprehensive Income - For the Three Months and Nine Months Ended September 30, 2000 and September 30, 1999 5 Unaudited Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2000 and September 30, 1999 6 Unaudited Consolidated Statements of Changes in Shareholders' Equity - For the Nine Months Ended September 30, 2000 and September 30, 1999 7 Notes to Unaudited 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 - ---------------------------------------------------------------------------------------- September 30, December 31, (In thousands, except share data) 2000 1999 - ---------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents: Cash and due from banks $87,763 $82,862 Interest bearing deposits in other banks 1,628 11,594 Federal funds sold and securities purchased under agreements to resell 51,875 40,904 - ---------------------------------------------------------------------------------------- Total cash and cash equivalents 141,266 135,360 - ---------------------------------------------------------------------------------------- Investment securities: Available for sale 158,647 167,944 Held to maturity 54,912 61,896 - ---------------------------------------------------------------------------------------- Total investment securities 213,559 229,840 - ---------------------------------------------------------------------------------------- Loans, net of unearned income 678,551 643,190 Allowance for loan losses (10,177) (9,659) - ---------------------------------------------------------------------------------------- Loans, net 668,374 633,531 - ---------------------------------------------------------------------------------------- Premises and equipment, net 25,071 24,409 Other assets 17,553 16,647 - ---------------------------------------------------------------------------------------- Total assets $1,065,823 $1,039,787 - ---------------------------------------------------------------------------------------- LIABILITIES Deposits: Noninterest bearing $163,208 $176,315 Interest bearing 681,538 685,905 - ---------------------------------------------------------------------------------------- Total deposits 844,746 862,220 - ---------------------------------------------------------------------------------------- Securities sold under agreements to repurchase 76,987 41,200 Other borrowed funds 11,744 4,439 Dividends payable 2,102 2,162 Other liabilities 6,840 4,660 - ---------------------------------------------------------------------------------------- Total liabilities 942,419 914,681 - ---------------------------------------------------------------------------------------- Commitments and contingencies SHAREHOLDERS' EQUITY Common stock, par value $0.125 per share 9,608,000 shares authorized; 7,210,376 and 7,437,792 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively 1,004 1,002 Capital surplus 13,365 12,370 Retained earnings 129,533 125,173 Treasury stock (19,357) (11,498) 820,021 and 581,586 shares at cost at September 30, 2000 and December 31, 1999, respectively Accumulated other comprehensive loss (1,141) (1,941) - --------------------------------------------------------------------------------------- Total shareholders' equity 123,404 125,106 - --------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,065,823 $1,039,787 - --------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share data) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $15,519 $13,748 $44,901 $40,398 Interest on investment securities: Taxable 2,140 2,363 6,521 7,018 Nontaxable 859 944 2,620 2,863 Interest on deposits in other banks (38) 19 (3) 56 Interest on federal funds sold and securities purchased under agreements to resell 666 275 1,514 1,136 - ------------------------------------------------------------------------------------------------------------------- Total interest income 19,146 17,349 55,553 51,471 - ------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 7,371 6,170 20,988 18,757 Interest on other borrowed funds 999 528 2,252 1,488 - ------------------------------------------------------------------------------------------------------------------- Total interest expense 8,370 6,698 23,240 20,245 - ------------------------------------------------------------------------------------------------------------------- Net interest income 10,776 10,651 32,313 31,226 - ------------------------------------------------------------------------------------------------------------------- Provision for loan losses 460 506 1,887 1,141 - ------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 10,316 10,145 30,426 30,085 - ------------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME Service charges and fees on deposits 1,316 1,333 3,884 3,883 Other service charges, commissions, and fees 1,038 832 3,174 2,679 Data processing income 340 350 1,016 1,064 Trust income 406 327 1,225 973 Investment securities gains 49 Gain (loss) on sale of loans 13 28 (49) Other 33 74 151 231 - ------------------------------------------------------------------------------------------------------------------- Total noninterest income 3,146 2,916 9,478 8,830 - ------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 4,547 4,393 14,053 13,311 Occupancy expenses, net 546 548 1,655 1,659 Equipment expenses 708 747 2,060 2,206 Bank franchise tax 289 283 863 809 Other 2,063 1,901 6,311 6,026 - ------------------------------------------------------------------------------------------------------------------- Total noninterest expense 8,153 7,872 24,942 24,011 - ------------------------------------------------------------------------------------------------------------------- Income before income taxes 5,309 5,189 14,962 14,904 - ------------------------------------------------------------------------------------------------------------------- Income tax expense 1,522 1,421 4,225 3,965 - ------------------------------------------------------------------------------------------------------------------- Net income $3,787 $3,768 $10,737 $10,939 - ------------------------------------------------------------------------------------------------------------------- NET INCOME PER COMMON SHARE Basic and diluted $.52 $.50 $1.46 $1.46 - ------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING Basic 7,263 7,458 7,343 7,487 Diluted 7,279 7,475 7,346 7,487 - ------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statement
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - --------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, (In Thousands) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Net Income $3,787 $3,768 $10,737 $10,939 Other comprehensive income (loss): Unrealized holding gain (loss) on available for sale securities arising during the period, net of tax of $617, $53, $412, and $(842), respectively 1,198 103 800 (1,634) Reclassification adjustment for prior period unrealized gain recognized during current period, net of tax of $(37) in 1999. (71) - --------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) 1,198 103 800 (1,705) - --------------------------------------------------------------------------------------------------------------------- Comprehensive income $4,985 $3,871 $11,537 $9,234 - --------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - ----------------------------------------------------------------------------------------------------- Nine months ended September 30, (In thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $10,737 $10,939 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,961 2,199 Net amortization of investment security premiums and discounts: Available for sale (364) (111) Held to maturity (8) 20 Provision for loan losses 1,887 1,141 Noncash compensation expense 726 805 Mortgage loans originated for sale (8,069) (9,534) Proceeds from sale of mortgage loans 7,700 12,073 Deferred income tax expense 61 163 (Gain) loss on sale of mortgage loans (28) 49 Gain on sale of available for sale investment securities (49) Gain on sale of fixed assets (4) (7) Increase in accrued interest receivable (775) (885) (Increase) decrease in other assets (551) 451 Increase (decrease) in accrued interest payable 486 (96) Increase in other liabilities 1,268 80 - ----------------------------------------------------------------------------------------------------- Net cash provided by operating activities 15,027 17,238 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities and calls of investment securities: Available for sale 110,413 112,509 Held to maturity 6,992 7,377 Proceeds from sale of available for sale investment securities 13,397 Purchase of investment securities Available for sale (99,540) (111,015) Loans originated for investment, net of principal collected (36,333) (30,241) Purchases of premises and equipment (2,273) (1,997) Proceeds from sale of equipment 26 215 - ------------------------------------------------------------------------------------------------------ Net cash used in investing activities (20,715) (9,755) - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (17,473) (3,821) Net increase in other borrowed funds 43,092 11,177 Dividends paid (6,437) (6,312) Purchase of common stock (7,859) (2,322) Stock options exercised 271 133 - ------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 11,594 (1,145) - ------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 5,906 6,338 - ------------------------------------------------------------------------------------------------------ Cash and cash equivalents at beginning of year 135,360 91,834 - ------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $141,266 $98,172 - ------------------------------------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $22,753 $20,341 Income taxes 4,150 4,325 Cash dividend declared and unpaid 2,102 2,089 - ------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated (In thousands, except per share data) Other Total Nine months ended September 30, 2000 Common Stock Capital Retained Treasury Comprehensive Shareholders' and 1999 Shares Amount Surplus Earnings Stock (Loss) Income Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1999 7,438 $1,002 $12,370 $125,173 $(11,498) $(1,941) $125,106 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income 10,737 10,737 Other comprehensive income 800 800 Cash dividends declared, $.87 per share (6,377) (6,377) Purchase of common stock (238) (7,859) (7,859) Stock options exercised, including related tax benefits 11 2 269 271 Effect of noncash compensation attributed to stock options grant 726 726 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at September 30, 2000 7,211 $1,004 $13,365 $129,533 $(19,357) $(1,141) $123,404 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1998 7,520 $1,001 $11,097 $119,692 $(8,320) $369 $123,839 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income 10,939 10,939 Other comprehensive loss (1,705) (1,705) Cash dividends declared, $.84 per share (6,288) (6,288) Purchase of common stock (64) (2,322) (2,322) Stock options exercised, including related tax benefits 5 1 132 133 Effect of noncash compensation attributed to stock options grant 805 805 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at September 30, 1999 7,461 $1,002 $12,034 $124,343 $(10,642) $(1,336) $125,401 - ------------------------------------------------------------------------------------------------------------------------------------ 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 Company. All significant intercompany transactions and accounts have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities 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. 3. Pending Legal Actions On April 7, 2000, the Company was assessed $99,875 in compensatory damages and $600,000 in punitive damages as a result of the jury's verdict in the SCHILLING, ET AL. V. FARMERS BANK & CAPITAL TRUST COMPANY case. The Company has filed a motion for a judgment notwithstanding the verdict or in the alternative for a new trial and is awaiting the judge's final ruling. Management, after discussion with legal counsel, believes it is more than remote but less than likely they will receive an unfavorable ruling. Accordingly, no expense has been accrued related to the jury's verdict. The loss, if any, from this case will be recognized on the date of the judge's final ruling. See Legal Proceedings in Part II of this Form 10-Q. As of September 30, 2000 there were various pending legal actions and proceedings against the Company arising from the normal course of business and in which claims for damages are asserted. Management, after discussion with legal counsel, believes these actions are without merit and 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 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 Third Quarter 2000 vs. Third Quarter 1999 ----------------------------------------- The Company reported net income of $3,787,000 or $.52 per diluted share for the third quarter of 2000 compared to net income of $3,768,000 or $.50 per diluted share for the third quarter of 1999. Net interest income for the three months increased $125 thousand or 1.2%. Non-interest income increased $170 thousand or 5.7%, and non-interest expense increased $221 thousand or 2.8%. Return on average assets was 1.48% for the third quarter of 2000 compared to 1.52% reported for the same period of 1999. Return on average equity was 12.18% for the third quarter of 2000, compared to 12.06% in the same period of 1999. Net Interest Income - ------------------- Net interest income totaled $10.8 million for the third quarter of 2000, an increase of $125 thousand or 1.2% over the third quarter of 1999. Total interest income was $19.1 million for the third quarter of 2000, an increase of $1.8 million or 10.4%. Total interest expense was $8.3 million for the current quarter, an increase of $1.7 million or 25.0% compared to the same period in 1999. Average interest bearing liabilities increased $35.2 million while the rate paid increased 71 basis points to 4.47%. Interest and fees on loans increased $1.8 million mainly due to an increase in volume. Average loans increased $52.8 million, or 8.5% while the yield increased 35 basis points to 9.21%. Interest on taxable securities decreased $223 thousand or 9.4% mainly due to a $26.5 million decrease in the average balance. The decrease in the average balance was partially offset by a 49 basis point increase in the average rate earned on these securities. Interest on nontaxable securities decreased $85 thousand or 9.0% due to a decrease in the average balance. Interest on short-term investments increased $334 thousand, which is primarily due to a $16.1 million increase in the average balance. The net interest margin on a tax equivalent basis decreased to 4.84% during the third quarter of 2000 compared to 4.99% in the third quarter of 1999. The spread between rates earned and paid was 3.98% for the current quarter compared to 4.23% in the same period last year. The decrease is the result of the 71 basis point increase in the average rate paid on interest bearing liabilities while the yield earned on interest earning assets only increased 46 basis points. Noninterest Income - ------------------ Noninterest income was $3.1 million for the current quarter, up $230 thousand or 7.9% compared to the prior year. Service charges and fees on deposits, the largest component of noninterest income, remained relatively unchanged at $1.3 million. Other service charges, commissions, and fees were up $206 thousand and totaled $1.0 million. Trust fees increased $79 thousand to $406 thousand. Other noninterest income decreased $41 thousand. Noninterest Expense - ------------------- Total noninterest expenses increased $281 thousand or 3.6% from the third quarter of 1999 to $8.2 million. Salaries and employee benefits, the largest component of noninterest expense, increased $154 thousand or 3.5%. Occupancy expense, net of rental income, was relatively unchanged at $546 thousand. Equipment expense decreased $39 thousand or 5.2%. Bank franchise tax was relatively unchanged at $289 thousand. Other noninterest expense increased $162 thousand or 8.5% to $2.1 million. Income Taxes - ------------ Income tax expense for the third quarter of 2000 was $1.5 million, an increase of $101 thousand or 7.1% from the third quarter of 1999. The effective tax rate was 28.7% for the current quarter, an increase from 27.4% from the third quarter of 1999. The increase in the effective tax rate is due to a decrease in tax-exempt income from both municipal loans and municipal securities. First Nine Months of 2000 vs. First Nine Months of 1999 ------------------------------------------------------- Net income for the nine months ended September 30, 2000 was $10.7 million compared to $10.9 million for the same period in 1999, a decrease of $202 thousand or 1.8%. Diluted net income per share remained unchanged at $1.46. Fueled by loan growth, net interest income for the nine months increased $1.1 million or 3.5%, but was offset by a $746 thousand increase in the provision for loan losses and an increase in noninterest expense of $578 thousand. Return on average assets was 1.42% for the nine months ended September 30, 2000, a decrease of 6 basis points from the same period in 1999. Return on average equity was 11.55%, a decrease from 11.79% for the first nine months of 1999. Net Interest Income - ------------------- Net interest income totaled $32.3 million for the nine months ended September 30, 2000, an increase of $1.1 million or 3.5% compared to the same period in 1999. Total interest income was $55.6 million compared to $51.5 million a year ago. Total interest expense increased $3.0 million to a total of $23.2 million. Interest and fees on loans increased $4.5 million or 11.1%. The increase is attributed to an increase in average loans of $53.0 million, or 8.7%, and the increase in the yield of 18 basis points to 9.09%. Interest on taxable securities decreased $497 thousand as volume declined, but the yield increased 68 basis points to 6.33%. Interest on nontaxable securities decreased $243 thousand or 8.5% almost entirely on volume. Interest on short-term investments increased $319 thousand or 26.8%, which is primarily due to an increase of 136 basis points in the average rate earned. Interest expense on deposits increased $2.2 million or 11.9%. Interest expense on other borrowed funds increased $764 thousand. The increase of interest expense on deposits was mainly the result of an increase of 41 basis points in the average rate paid. The increase of interest expense on other borrowed funds was primarily the result of an increase in the average balance of $11.0 million. Net interest margin on a tax equivalent basis increased to 4.95% during the first nine months of 2000 compared to 4.91% for the same period of 1999. The spread between rates earned and paid was down 4 basis points to 4.12% in the nine-month comparison. Noninterest Income - ------------------ Noninterest income was $9.5 million for the first nine months of 2000, an increase of $648 thousand or 7.3% compared to the same period in 1999. Service charges and fees on deposits remained relatively unchanged at $3.9 million. Other service charges, commissions, and fees increased $495 thousand or 18.5%. Data processing fees decreased $48 thousand or 4.5%. Trust fees increased $252 thousand to a total of $1.2 million. Gains on the sale of available for sale investment securities were $49 thousand in the prior year with none in the current year. The gain on sale of loans increased $77 thousand. Noninterest Expense - ------------------- Noninterest expense was $25.0 million for the first nine months of 2000, an increase of $931 thousand or 3.9% compared to the same period in 1999. Salaries and employee benefits, the largest component of noninterest expense, increased $742 thousand or 5.6%. Occupancy expense, net of rental income, was unchanged at $1.7 million. Equipment expense decreased $146 thousand or 6.6%. Bank franchise tax expense increased $54 thousand or 6.7%. Other noninterest expense increased $285 thousand or 4.7% to $6.3 million. Income Taxes - ------------ Income tax expense for the first nine months of 2000 was $4.2 million, an increase of $260 thousand compared to the same period in 1999. The effective tax rate was 28.2% for the first nine months of 2000, up from 26.6% in the prior year. The increase in the effective tax rate is due to a decrease in tax-exempt income from both municipal loans and municipal securities. FINANCIAL CONDITION Total assets were $1.1 billion on September 30, 2000, an increase of $26 million or 2.5% from December 31, 1999. Fluctuations in assets and deposits are typical due to the relationship between the Company's principal subsidiary, Farmers Bank & Capital Trust Co. 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 of the WIC (Women, Infants and Children) program for the Cabinet for Human Resources. The Bank's investment department provides services to the Teacher's Retirement systems. As the depository for the Commonwealth, large fluctuations in deposits are likely to occur on a daily basis. On an average basis, total assets were $1.0 billion for the first nine months of 2000, an increase of $18 million or 1.8% from year-end 1999. Loans - ----- Loans, net of unearned income, totaled $679 million at September 30, 2000, an increase of $35.4 million or 5.5% from year-end 1999. On average, loans represented 72.9% of earning assets compared to 69.1% for 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 $10.2 million at September 30, 2000, an increase of $518 thousand from the prior year end. The allowance for loan losses was 1.5% of net loans at September 30, 2000. In management's opinion, the allowance for loan losses is adequate to cover losses inherent in the loan portfolio. The provision for loan losses increased $746 thousand in the current period compared to the same period in 1999. The Company had net charge-offs of $1.4 million in the first nine months of 2000 compared to net charge-offs of $714 thousand in the same period of 1999. A significant percentage of the net charge-offs has been confined to a relatively small number of loans. 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 consists of nonaccrual loans, restructured loans, and loans past due ninety days or more on which interest in still accruing. Nonperforming assets totaled $4.4 million at September 30, 2000, a decrease of $1.3 million or 23.3% from the prior year-end. Nonperforming assets to total equity decreased from 4.6% at year-end 1999 to 3.5% at September 30, 2000. Nonperforming loans totaled $3.4 million at September 30, 2000, a decrease of $1.5 million or 30.1% compared to year-end 1999. Nonperforming loans as a percentage of net loans decreased from .76% at year-end to .50% at September 30, 2000. Other real estate owned, which had a balance of $735 thousand at year-end 1999, increased to $765 thousand as of September 30, 2000. Temporary Investments - --------------------- Time deposits with banks, federal funds sold and securities purchased under agreements to resell averaged $32.9 million, an increase of $2.0 million or 6.3% from year end 1999. Temporary investments are reallocated as loan demand presents the opportunity. Investment Securities - --------------------- Investment securities were $214 million on September 30, 2000, a decrease of $16.3 million or 7.1% from year-end 1999. Available for sale and held to maturity securities were $159 and $55 million, respectively. Investment securities averaged $214 million for the first nine months of 2000, a decrease of $31.9 million or 12.9% from year end 1999. The Company had an unrealized loss on available for sale investment securities of $1.1 million, net of tax, at September 30, 2000 compared to $1.9 million at year end 1999. Deposits - -------- Total deposits were $845 million at September 30, 2000, a decrease of $17.5 million or 2.0% from year-end 1999. Noninterest bearing deposits decreased $13.1 million in the comparison. This decrease is primarily due to the relationship between the Company's principal subsidiary and the Commonwealth of Kentucky as described in preceding sections of this report. On average, noninterest bearing deposits were $145.0 million during the current period, an increase of $4.4 million or 3.1%. Interest bearing deposits decreased $4.4 million during the nine months ended September 30, 2000 compared to year-end 1999. On average, interest bearing deposits were $680 million in the current period, an increase of $5.8 million from year end 1999. Total deposits averaged $825 million, an increase of $10.2 million or 1.2% from year-end 1999. Borrowed Funds - -------------- Borrowed funds totaled $88.7 million at September 30, 2000, an increase of $43.1 million from year-end 1999. This increase is primarily due to the relationship between the Company's principal subsidiary and the Commonwealth of Kentucky as described in preceding sections of this report. Total borrowed funds averaged $52.4 million, an increase of $7.0 million or 15.5% from year-end 1999. 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 September 30, 2000 combined retained earnings of the subsidiary banks were $51.8 million, of which $14.7 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 $25.5 million at September 30, 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 which can be used for liquidity purposes. These sources of funds primarily include the subsidiary banks' core deposits, consisting of both business and nonbusiness deposits; cash flow generated by repayment of loan principal and interest; and federal funds purchased and securities sold under agreements to repurchase. For the longer term, the liquidity position is managed by balancing the maturity structure of the balance sheet. This process allows for an orderly flow of funds over an extended period of time. Liquid assets consist of cash and due from banks, short-term investments, and securities available for sale. At September 30, 2000, such assets totaled $300 million, a decrease of $3 million from year-end 1999. Net cash provided by operating activities decreased $2.2 million in the nine months ended September 30, 2000 compared to the same period last year. The decrease is primarily attributed to the decrease in the proceeds from the sale of mortgage loans. Net cash used in investing activities was $20.7 million, an increase of $11.0 million. Net cash provided by financing activities was $11.6 million for the period ended September 30, 2000 compared to net cash used in financing activities of $1.1 million in the prior year comparison. The increase in net cash provided by financing activities is due primarily to the increase in other borrowed funds. CAPITAL RESOURCES Shareholders' equity was $123 million on September 30, 2000, down $1.7 million from year-end 1999. The Company purchased 238 thousand shares of its outstanding common stock during the first nine months of 2000 for a total cost of $7.9 million. The Company issued 11,019 shares of common stock during the first nine months pursuant to its nonqualified stock option plan. Dividends of $6.4 million or $.87 per share were declared during the first nine months of 2000, an increase of 3.6% per share compared to the prior year. The Company's available for sale investment securities portfolio had net unrealized losses of $1.1 million at September 30, 2000, down from a net unrealized loss of $1.9 million at year-end. Consistent with the objective of operating a sound financial organization, the Company's goal is to maintain capital ratios well above the regulatory minimum requirements. The Company's capital ratios as of September 30, 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 17.46% 4.00% 6.00% Total risk based 18.72% 8.00% 10.00% Leverage 12.19% 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 September 30, 2000. EFFECT OF IMPLEMENTING RECENTLY ISSUED ACCOUNTING STANDARDS In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", which delays the effective date of SFAS 133 until January 1, 2001; however, early adoption is permitted. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which provides guidance with respect to certain implementation issues related to SFAS No. 133. On adoption, the provisions of SFAS No. 133 must be applied prospectively. The Company will adopt SFAS No. 133 on January 1, 2001. Because the Company currently has no derivative instruments or hedging activities, the Company believes the effect of adoption will not have a material impact on the consolidated financial statements. Any derivative instruments acquired or hedging activities entered into will be recorded in the financial statements as required by SFAS No. 133 and SFAS No. 138. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" that replaces SFAS No. 125. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales, from transfers that are secured borrowings. The standards are based on the consistent application of the financial components approach, where upon after a transfer, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, and derecognizes financial liabilities when extinguished. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. A transfer of financial assets in which the transferor surrenders control is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. This Statement requires that liabilities and derivatives transferred be initially measured at fair value, if practicable. Servicing assets and other retained interest in the transferred assets are to be measured by allocating the previous carrying amount between the assets and retained interest sold, if any, based on their relative fair values on the date of the transfer. This Statement requires that servicing assets and liabilities be subsequently measured by amortization in proportion to and over the period of estimated net servicing income or loss, and assessment for asset impairment or increased obligation based on their fair values. This Statement requires that a liability be derecognized if the debtor pays the creditor and is relieved of its obligation for the liability, or the debtor is legally released from being the primary obligor under the liability either judicially or by the creditor. The Company does not expect the implementation of this Statement to have a material effect on the consolidated financial statements. 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 (the "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 the 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 the Bank on the plaintiffs' claim that the Bank had engaged in commercial bribery and that the legal fees that were paid by the Bank should be disgorged because of an alleged conflict of interest of the Bank's counsel. The jury found for the plaintiffs on the claim that the Bank had breached its fiduciary duty and awarded the plaintiffs $99,875 in compensatory damages and $600,000 in punitive damages. The 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 the 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. The Bank has also asserted that a new trial is warranted because of the erroneous admission of evidence concerning legal fees paid by the Bank. Plaintiffs 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. On August 1, 2000 the Kentucky Court of Appeals dismissed the appeals as having been prematurely filed. 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 September 30, 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 ------------------- None. 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: 11/9/00 /s/ Charles Scott Boyd ----------- ----------------------------------------------------- Charles Scott Boyd, President and CEO (Principal Executive Officer) Date: 11/9/00 /s/ Cecil Douglas Carpenter ----------- ----------------------------------------------------- Cecil Douglas Carpenter, Vice President and CFO (Principal Financial and Accounting Officer)
Exhibit 11 Statement re computation of per share earnings - ------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share data) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------ Net income, basic and diluted $3,787 $3,768 $10,737 $10,939 - ------------------------------------------------------------------------------------------------------ Average shares outstanding 7,263 7,458 7,343 7,487 Effect of dilutive stock options 16 17 3 - ------------------------------------------------------------------------------------------------------ Average diluted shares outstanding 7,279 7,475 7,346 7,487 - ------------------------------------------------------------------------------------------------------ Net income per share, basic $.52 $.50 $1.46 $1.46 Net income per share, diluted $.52 $.50 $1.46 $1.46 - ------------------------------------------------------------------------------------------------------
EX-27 2 0002.txt FDS 9/30/00
9 This schedule contains summary financial information extrated from the September 30, 2000 financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-2000 JUL-1-2000 SEP-30-2000 87,763 1,628 51,875 0 158,647 54,912 55,004 678,551 10,177 1,065,823 844,746 77,758 9,788 10,127 0 0 1,004 122,400 1,065,823 15,519 2,999 628 19,146 7,371 8,370 10,776 460 0 8,153 5,309 5,309 0 0 3,787 0.52 0.52 4.84 2,412 1,446 0 0 9,659 1,860 491 10,177 10,177 0 0
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