-----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, PkN0nTFCSTagvUzJZd+2asYrubzNuDWQm62NR+DWsG+x54OMuYoIuPGu6pM1UBjs B+WpsP9/RRfWvAHhwPjkqA== 0000713095-97-000008.txt : 19970328 0000713095-97-000008.hdr.sgml : 19970328 ACCESSION NUMBER: 0000713095-97-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14412 FILM NUMBER: 97564646 BUSINESS ADDRESS: STREET 1: W MAIN ST PO BOX 309 STREET 2: ONE FARMERS BANK PLZ CITY: FRANKFORT STATE: KY ZIP: 40602 BUSINESS PHONE: 5021171600 MAIL ADDRESS: STREET 1: P O BOX 309 STREET 2: WEST MAIN STREET CITY: FRANKFORT STATE: KY ZIP: 40602 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 St. Frankfort, Kentucky 40601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502)227-1600 Securities registered pursuant to Section 12(b) of the Act: None None (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Common Stock - $.25 per share Par Value (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X 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 The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of March 1, 1997 was $153,676,521. As of March 1, 1997, there were 3,794,482 shares issued and outstanding. Documents incorporated by reference: Form 8-K, Current Report, as filed with the Commission on March 7, 1997 is incorporated by reference in Part II, Item 9. Proxy Statement for the annual meeting of shareholders scheduled to be held May 13, 1997 - portions of which are incorporated by reference in Part III. An index of exhibits filed with this Form 10-K can be found on page 53. FARMERS CAPITAL BANK CORPORATION FORM 10-K INDEX Page Part I Item 1 - Business 4 Item 2 - Properties 9 Item 3 - Legal Proceedings 10 Item 4 - Submission of Matters to a Vote of Security Holders 12 Part II Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters 12 Item 6 - Selected Financial Data 14 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8 - Financial Statements and Supplementary Data 28 Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 49 Part III Item 10 - Directors and Executive Officers of the Registrant 50 Item 11 - Executive Compensation 50 Item 12 - Security Ownership of Certain Beneficial Owners and Management 50 Item 13 - Certain Relationships and Related Transactions 50 Part IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K 51 Signatures 52 Index of Exhibits 53 PART I Item 1 - Business Organization Farmers Capital Bank Corporation ("the Registrant") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and was organized on October 28, 1982, under the laws of the Commonwealth of Kentucky. Its subsidiaries provide a wide range of banking and bank-related services to customers throughout Kentucky. The bank subsidiaries owned by the Registrant are Farmers Bank & Capital Trust Company ("Farmers Bank"), Frankfort, Kentucky; United Bank & Trust Co. ("United Bank"), Versailles, Kentucky; Lawrenceburg National Bank ("Lawrenceburg Bank"), Lawrenceburg, Kentucky; First Citizens Bank, Hardin County, Incorporated ("First Citizens Bank"), Elizabethtown, Kentucky; Farmers Bank and Trust Company ("Farmers Georgetown Bank"), Georgetown, Kentucky; and Horse Cave State Bank ("Horse Cave Bank"), Horse Cave Kentucky. The Registrant also owns two non-bank subsidiaries; FCB Services, Inc. ("FCB Services"), Frankfort, Kentucky and Farmers Capital Insurance Company ("Farmers Insurance"), Frankfort, Kentucky. As of December 31, 1996, the Registrant had $925 million in consolidated assets. Farmers Bank, originally organized in 1850, is a state chartered bank engaged in a wide range of commercial and personal banking activities, which include accepting savings, time and demand deposits; making secured and unsecured loans to corporations, individuals and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services. The bank's lending activities include making commercial, construction, mortgage and personal loans and lines of credit. The bank serves as an agent in providing credit card loans. It acts as trustee of personal trusts, as executor of estates, as trustee for employee benefit trusts, as registrar, transfer agent and paying agent for bond issues. Farmers Bank also acts as registrar, transfer agent and paying agent for the Registrant's stock issue. Farmers Bank is the general depository for the Commonwealth of Kentucky and has been for more than 70 years. Farmers Bank is the largest bank in Franklin County. It conducts business in its principal office and four branches within Frankfort, the capital of Kentucky. Franklin County is a diverse community, including government, commerce, finance, industry, medicine, education and agriculture. The bank also serves many individuals and corporations throughout Central Kentucky. On December 31, 1996, it had total assets of $405 million, including loans of $234 million. On the same date, total deposits were $359 million and shareholders' equity totaled $36 million. Farmers Bank had three subsidiaries during the year: Farmers Bank Realty Company ("Realty"); Money One Credit of Kentucky, Inc. ("Money One"); and Leasing One Corporation ("Leasing One"). Farmers Bank, Realty and Money One, Inc. owned a partnership - Money One Credit Company ("MOCC") prior to its dissolution at the end of 1996. Farmers Bank also participates in a joint venture - Frankfort ATM, Ltd. ("ATM"). Realty was incorporated in 1978 for the purpose of owning certain real estate used by the Registrant and Farmers Bank in the ordinary course of business. Realty had total assets of $3.5 million on December 31, 1996. Money One was incorporated in 1989 and until January 1, 1993, was a direct subsidiary of the Registrant. It managed the consumer finance company, MOCC. At December 31, 1996 it had $824 thousand in assets. As of the close of business on December 31, 1996, Money One was dissolved and all assets were distributed to Farmers Bank, it sole shareholder. MOCC was established on June 1, 1994. It was a partnership engaged in consumer lending activities under Chapter 288 of the Kentucky Revised Statutes. As stated earlier, the partners included Farmers Bank, Realty and Money One. Prior to May 31, 1996, MOCC had fourteen offices throughout Kentucky. On May 31, 1996, MOCC sold its entire loan portfolio and fixed assets to an unrelated third party. At the close of business on December 31, 1996 its total remaining assets of $11.0 million were distributed to its partners and the company dissolved. Leasing One was incorporated in August, 1993 to operate as a commercial equipment leasing company. It is located in Frankfort, but conducts business in Ohio, Indiana, Tennessee and Kentucky. At year end it had total assets of $15.7 million. A fourth subsidiary, Farmers Financial Services Corporation ("FFSC"), was in existence for the first three quarters of 1995. FFSC was incorporated in 1985 in order to enter into a partnership with several other banks to form a statewide electronic network. The partnership, known as "Transaction Services Company", supported an automated teller machine network (Quest) with machines throughout Kentucky and Indiana as well as point-of-sale terminals in retail stores. With the termination of the "Quest" network, the parternship known as "Transaction Services Company" was also terminated. As a result, FFSC was dissolved as of September 27, 1995. Farmers Bank has a 50% interest in ATM, a joint venture for the purpose of ownership of automatic teller machines in the Frankfort area. State National Bank, a Frankfort bank not otherwise associated with the Registrant, also has a 50% interest in ATM. On February 15, 1985, the Registrant acquired United Bank, a state chartered bank originally organized in 1880. It is engaged in a general banking business providing full service banking to individuals, businesses and governmental customers. It conducts business in its principal office and two branches in Woodford County, Kentucky. On February 3, 1997, it purchased a building in Midway for the purpose of moving its existing Midway branch. The new building will allow the bank to offer drive thru services to its customers. United Bank is the second largest bank in Woodford County with total assets of $101 million and total deposits of $90 million at December 31, 1996. Pursuant to Parity Letter number Two, issued by the Kentucky Department of Financial Institutions, the Board of Directors authorized (during 1996) the management of United Bank to investigate the merits of establishing and operating an insurance agency at the Midway Branch. On June 28, 1985, the Registrant acquired Lawrenceburg Bank, a national chartered bank originally organized in 1885. It is engaged in a general banking business providing full service banking to individuals, businesses and governmental customers. It conducts business in its principal office and one branch in Anderson County, Kentucky. Lawrenceburg Bank is the largest bank in Anderson County with total assets of $98 million and total deposits of $89 million at December 31, 1996. On March 31, 1986, the Registrant acquired First Citizens Bank, a state chartered bank originally organized in 1964. It is engaged in a general banking business providing full service banking to individuals, businesses and governmental customers. It conducts business in its principal office and four branches in Hardin County, Kentucky. First Citizens Bank is the second largest bank domiciled in Hardin County, with total assets of $119 million and total deposits of $99 million at December 31, 1996. On June 30, 1986, the Registrant acquired Farmers Georgetown Bank, a state chartered bank originally organized in 1850. It is engaged in a general banking business providing full service banking to individuals, businesses and governmental customers. It conducts business in its principal office and three branches in Scott County, Kentucky. During 1996, Farmers Georgetown Bank received notice from the State of Kentucky that it would exercise its power of eminent domain at the site of the downtown Georgetown branch. Management is currently seeking alternative sites to relocate this branch, which is expected to be completed in 1997. Farmers Georgetown Bank is the largest bank in Scott County with total assets of $123 million and total deposits of $111 million at December 31, 1996. On June 15, 1987, the Registrant acquired Horse Cave Bank, a state chartered bank originally organized in 1926. It is engaged in a general banking business providing full service banking to individuals, businesses and governmental customers. It conducts business in its principal office and one branch in Hart County, Kentucky. On December 31, 1996, it filed an application with the Kentucky Department of Financial Institutions under Parity Letter number One to move its charter to Glasgow, Kentucky. Once regulatory approval is granted, Horse Cave Bank will maintain a branch in Horse Cave. Horse Cave Bank is the largest bank in Hart County with total assets of $77 million and total deposits of $66 million at December 31, 1996. Subsidiary banks make first and second residential mortgages secured by the real estate not exceeding 90% loan to value without seeking third party guarantees. Commercial real estate loans are made in the low to moderate range, secured by the real estate not exceeding 80% loan to value. Other commercial loans are asset based loans secured by equipment and lines of credit secured by receivables. Secured and unsecured consumer loans generally are made for automobiles and other motor vehicles. In most cases loans are restricted to the subsidiaries' general market area. Prior to the sale of its loans and fixed assets, the consumer finance subsidiary made secured and unsecured installment loans for various purposes. The leasing subsidiary makes secured equipment leases to commercial and municipal entities in Kentucky, Indiana, Ohio and Tennessee. FCB Services, organized in 1992, provides data processing services and support for the Registrant and its subsidiaries. It is located in Frankfort, Kentucky. During 1994, FCB Services began performing data processing services for nonaffiliated banks. Farmers Insurance was organized in 1988 to engage in insurance activities permitted to the Registrant by federal and state law. This corporation has had no activity to date. Supervision and Regulation The Registrant, as a registered bank holding company, is restricted to those activities permissible under the Bank Holding Company Act of 1956, as amended, and is subject to actions of the Board of Governors of the Federal Reserve System thereunder. It is required to file various reports with the Federal Reserve Board, and is subject to examination by the Board. The Registrant's state bank subsidiaries are subject to state banking law and to regulation and periodic examinations by the Kentucky Department of Financial Institutions. Lawrenceburg Bank, a national bank, is subject to similar regulation and supervision by the Comptroller of the Currency under the National Bank Act and the Federal Reserve System under the Federal Reserve Act. Deposits of the Registrant's subsidiary banks are insured by the Federal Deposit Insurance Corporation Bank Insurance Fund, which subjects the banks to regulation and examination under the provisions of the Federal Deposit Insurance Act. The operations of the Registrant and its subsidiary banks also are affected by other banking legislation and policies and practices of various regulatory authorities. Such legislation and policies include statutory maximum rates on some loans, reserve requirements, domestic monetary and fiscal policy, and limitations on the kinds of services which may be offered. The Bank Holding Company Act formerly prohibited the Federal Reserve Board from approving an application from a bank holding company to acquire shares of another bank across its own state lines. However, effective September 1995, new legislation abolished those restrictions and now allows bank holding companies to acquire shares of out of state banks, subject to certain conditions. Currently, the Company has no plans to purchase shares of an out of state bank. The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides that a holding company's controlled insured depository institutions are liable for any loss incurred by the Federal Deposit Insurance Corporation in connection with the default of or any FDIC assisted transaction involving an affiliated insured bank. Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), the FDIC was required to establish a risk-based assessment system for insured depository institutions which became effective January 1, 1994. The FDIC has adopted a risk-based deposit insurance assessment system under which the assessment rate for an insured depository institution depends on the assessment risk classification assigned to the institution by the FDIC which is determined by the institution's capital level. Under FDICIA, the federal banking regulators are required to take prompt corrective action if an institution fails to satisfy certain minimum capital requirements, including a leverage limit, a risk-based capital requirement, and any other measure deemed appropriate by the federal banking regulators for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees that would cause the institution to be undercapitalized. The purpose of the Community Reinvestment Act (CRA) is to encourage banks to respond to the credit needs of the communities they serve, including low and moderate income neighborhoods. CRA states that banks should accomplish this while still preserving the flexibility needed for safe and sound operations. It is designed to increase the bank's sensitivity to investment opportunities which will benefit the community. Of the Company's six subsidiary banks, two have an outstanding CRA rating and four have a satisfactory rating. References under the caption "Supervision and Regulation" to applicable statutes and regulations are brief summaries of portions thereof which do not purport to be complete and which are qualified in their entirety by reference thereto. Competition The Corporation and its subsidiaries compete for banking business with various types of businesses other than commercial banks and savings and loan associations. These include, but are not limited to, credit unions, mortgage lenders, finance companies, insurance companies, stock and bond brokers, financial planning firms, and department stores which compete for one or more lines of banking business. The banks also compete for commercial and retail business not only with banks in Central Kentucky, but with banking organizations from Ohio, Indiana, Tennessee and Pennsylvania which have banking subsidiaries located in Kentucky and may possess greater resources than the Corporation. The primary areas of competition pertain to quality of services, interest rates and fees. The business of the Registrant is not dependent upon any one customer or on a few customers, and the loss of any one or a few customers would not have a materially adverse effect on the Registrant. No material portion of the business of the Registrant is seasonal. No material portion of the business of the Registrant is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government, though certain contracts are subject to such renegotiation or termination. The Registrant is not engaged in operations in foreign countries. Employees As of December 31, 1996, the Registrant and its subsidiaries had 444 full-time equivalent employees. Employees are provided with a variety of employee benefits. A retirement plan, a profit-sharing (401K) plan, group life insurance, hospitalization, dental and major medical insurance are available to eligible personnel. The employees are not represented by a union. Management and employee relations are good. Item 2 - Properties All of the Registrant's properties are owned or leased by the Banks or their subsidiaries. Farmers Bank and its subsidiary, Realty, currently own or lease nine buildings. Farmers Bank operates five branches, two of which it owns and three of which it leases. United Bank owns its two branch offices and approximately 52% of a condominiumized building which houses its main office. Lawrenceburg Bank owns its main office and its branch office. First Citizens Bank owns its main office and two of its four branches. The other two branch locations of First Citizens Bank are leased facilities, one of which is being located in a grocery store. Farmers Georgetown Bank owns its main office, another branch in downtown Georgetown and one in Stamping Ground, Kentucky. Farmers Georgetown Bank's third branch is located in a leased facility. Horse Cave Bank owns the building where it is headquartered. In the first quarter of 1991, Horse Cave Bank opened a branch in leased facilities in Munfordville, Kentucky. Prior to the sale of its entire loan portfolio and fixed assets on May 31, 1996, MOCC operated out of fourteen leased offices in fourteen cities within Kentucky. Item 3 - Legal Proceedings Farmers was named, on September 10, 1992, as a defendant in Case No. 92CI05734 in Jefferson Circuit Court, Louisville, Kentucky, Earl H. Shilling 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 (the "Series A Bonds") and County of Jefferson, Kentucky Nursing Home Improvement Bonds (Filson Care Home Project) Series 1986B (the "Series B Bonds") (collectively the "Bonds"). The plaintiffs alleged that the class which they purported to represent has been damaged in the approximate amount of $2,000,000 through the reduction in value of the Bonds and the collateral security therefore, and through the loss of interest on the Bonds since June 1, 1989, as a result of alleged negligence, breach of trust, and breach of fiduciary duty on the part of Farmers Bank in its capacity as indenture trustee for the Bonds. A subsequent amendment to the complaint further alleges that Farmers Bank conspired with and aided and abetted the former management of the Filson Care Homein its misappropriation of the nursing home's revenues and assets to the detriment of the Bondholders and in order to unlawfully secure and benefit Farmers Bank. The amendment seeks unspecified punitive damages against Farmers Bank. On July 6, 1993, the Circuit Court denied the plaintiff's motion to certify the case as a class action on behalf of all present and former owners of the Bonds. Under that ruling, the action may be maintained only with respect to the individual claims of the named plaintiffs and any other Bondholders whom the court might allow to join in the action with respect to their own individual claims. Since the denial of class certifications, the complaint has been amended twice to join additional Bondholders as plaintiffs. The 42 existing plaintiffs claim to hold Bonds having an aggregate face value of $470,000. The case is presently in the process of discovery. Farmers Bank believes that the claims of the plaintiffs are unfounded and totally without merit, and Farmers Bank intends to vigorously contest any further proceedings in the case. Two of the original named plaintiffs in the case before the Circuit Court filed a similar action, Earl H. Schilling et al v. Farmers Bank & Capital Trust Company, on July 7, 1992 in the United State District Court for the Western District of Kentucky at Louisville, Case No. C-920399 L-M. That action has been dismissed without prejudice on the grounds that the plaintiffs did not appear to be able to establish federal jurisdiction. On November 27, 1995, one of the Registrant's subsidiaries, Farmers Bank & Capital Trust co. ("Farmers Bank') filed suit in the Circuit Court for Franklin County, Kentucky against Travel Professionals of Frankfort, Inc. and Travel Professionals of Scott County, Inc. (the "TPI Companies") to collect five (5) loans totaling approximately $1,158,572 plus interest, costs and attorney's fees. By an amended complaint filed in 1996, alleging breach of contract, fraud and breach of duty of due care and diligence, the plaintiff claimed additional damages in the approximate amount of $1,206,342 against the various defendants. In addition to the TPI Companies, other named defendants were Charles O. Bush, Sr., a director of the bank (by virtue of his directorship and of certain guarantees) and two of his children, Charles O. Bush, Jr. and Karen Wilhelm and their respective spouses, Sandra Bush and David Wilhelm, (collectively, the "Bush Family Members"). In addition, Ray Godbey and Virginia Godbey, officers of the Corporation were joined as defendants. Each of the defendants has filed an answer and counterclaim denying liability to Farmers Bank and asserting various claims for damages against the Bank. The registrant believes that the defenses and claims asserted by the defendants are without merit and Farmers Bank has denied any liability to the defendants. The litigation presently is in the discovery phase and is being vigorously defended. The Registrant's Georgetown, Kentucky affiliate, Farmers Georgetown Bank, and its Executive Vice President, have been named defendants in a civil action brought on August 1, 1994 by a loan customer of the Bank, in which the customer alleges (1) fraud, (2) breach of good faith and fair dealing, (3) disclosure of false credit information (defamation) and (4) outrageous conduct. As earlier reported, the initial amount in controversy for the first three counts was unspecified. The amount originally sought as punitive damages for outrageous conduct was $10,000,000. By order of the Scott County Circuit Court, Georgetown, Kentucky, the plaintiffs were required to quantify the amounts in controversy. For the count of fraud the plaintiffs seek $50,000; for the count of breach of good faith and fair dealing the plaintiff seeks $12,900,000; for the count of defamation the plaintiffs seek $14,800,000 plus an estimated $75,000 in legal costs. Further the amount now sought as punitive damages is $21,000,000. The conduct complained about in counts 1 and 2 involves former officers of Farmers Georgetown Bank. The Bank at this time has had the opportunity to examine those former officers knowledge of the events alleged to have taken place and believes there is no merit to the allegations. The Farmers Georgetown Bank also believes that there is no merit to the allegations in counts 3 and 4 and intends to vigorously defend all claims. The case was set for trial in both November 1995 and February 1996, but was continued the second time to September 1996. In September of 1996, the court granted the defendant's motions for summary judgements on all counts of the complaint. The plaintiff's appealed to the Court of Appeals of Kentucky and that appeal is now pending. Management believes the previously mentioned actions are without merit, that in certain instances its actions or omissions were pursuant to the advice of counsel, or that the ultimate liability, if any, resulting from one or more of the claims will not materially affect the Registrant's consolidated financial position or results of operations or cash flows, although resolution in any year or quarter could be material for that period. Item 4 - Submission of Matters to a Vote of Security Holders No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. PART II Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters The Registrant's stock is traded on the National Association of Security Dealers Automated Quotation System (NASDAQ) SmallCap Market tier of the NASDAQ Stock Market, with sales prices reported under the symbol: FFKT. The amount of dividends per share declared by the Registrant during the last two calendar years is also included below: Dividends Stock Prices High Low Declared 4th Quarter, 1996 $40.75 $39.25 $0.41 3rd Quarter, 1996 40.50 34.50 0.36 2nd Quarter, 1996 41.50 33.50 0.36 1st Quarter, 1996 42.50 38.50 0.36 4th Quarter, 1995 $43.50 $37.00 $0.36 3rd Quarter, 1995 39.50 33.00 0.33 2nd Quarter, 1995 37.00 32.50 0.33 1st Quarter, 1995 38.00 35.50 0.33 As of January 1, 1997, there were 864 shareholders of record. This figure does not include individual participants in security position listings. Payment of dividends by the Registrant's subsidiary banks is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. At December 31, 1996, combined retained earnings of the subsidiary banks were approximately $39,378,000 of which $7,742,000 was available for the payment of dividends in 1997 without obtaining prior approval from bank regulatory agencies. Stock Transfer Agent and Registrar: Farmers Bank & Capital Trust Co. P.O. Box 309 Frankfort, Kentucky 40602 The Registrant offers shareholders automatic reinvestment of dividends in shares of stock at the market price without fees or commissions. For a description of the plan and an authorization card, contact the Registrar above. NASDAQ Market Makers: J.J.B. Hilliard, W.L. Lyons, Inc. Herzog, Heine, Geduld, Inc. 502/588-8400 or 800/221-3600 800/444-1854 J.C. Bradford and Co., Inc. PaineWebber Incorporated 800/443-8749 800/222-1448 Item 6 - Selected Financial Data December 31 (In thousands, except per share data) 1996 1995 1994 1993 1992 Interest income $ 67,485 $ 67,261 $ 57,750 $ 54,612 $ 60,278 Interest expense 28,703 28,115 21,586 21,768 27,940 Net interest income 38,782 39,146 36,164 32,844 32,338 Provision (credit) for loan losses 4,162 3,727 2,125 (2,026) 3,236 Net income 12,656 10,389 10,250 10,804 6,317 Per shre data Net income 3.29 2.69 2.65 2.79 1.63 Cash dividends declared 1.49 1.35 1.23 1.11 1.08 Book value 28.86 27.14 25.88 24.60 22.91 Total shareholders' equity 109,596 104,929 100,064 95,091 88,579 Total assets 925,319 906,113 851,703 794,269 820,991 Long term debt 3,571 3,886 4,865 2,695 159 Percentage of net income to: Average shareholders' equity (ROE) 11.80% 10.20% 10.55% 11.86% 7.16% Average total assets (ROA) 1.41 1.21 1.22 1.33 .78 Percentage of dividends declared to net income 45.21 50.24 46.40 39.78 66.26 Percentage of average shareholders' equity to average total assets 11.94 11.81 11.57 11.22 10.85 Weighted average shares outstanding 3,842 3,866 3,866 3,866 3,866 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results Farmers Capital Bank Corporation (the "Company') recorded net income of $12.7 million or $3.29 per share for 1996, up 21.8% from $10.4 million or $2.69 per share reported for 1995. The increase is primarily due to the gain on the sale of loans of the Company's consumer finance subsidiary ("Money One") during the second quarter of 1996. The sale of Money One loans affected consolidated results in a number of ways. First, the pre-tax gain of $3.2 million increased earnings for the year. Second, the Company experienced an immediate decrease in net loans of approximately $11.5 million. By year end 1996, loan volume had grown enough to replace the loans sold and to increase net loans by approximately $15 million over the prior year. The impact of the gain on sale of loans can also be seen in the Company's performance ratios. Return on average assets increased from 1.21% to 1.41% and return on average equity increased from 10.20% to 11.80%. Interest Income Total interest income on a tax equivalent basis was $69.1 million, up $438 thousand from 1995. The largest contributors to the increase were taxable and nontaxable investment securities. Interest on taxable and nontaxable investment securities was positively impacted by increases both in volume and in rate. Average taxable investment securities increased $19.7 million or 14.5%, while the average rate earned increased from 5.82% to 5.86%. The average balance of nontaxable investment securities increased $11.1 million or 21.9% while the average rate earned increased from 6.64% to 6.70% Interest on time deposits with banks, federal funds sold, and securities purchased under agreement to resell decreased $328 thousand to $2.7 million. Interest and fees on loans decreased $1.2 million or 2.2%. Although average loans increased $5.4 million or 1.0%, the average rate earned on loans decreased 32 basis points from 10.05% to 9.73%. The decline in the average rate earned on loans is partially due to the decline in higher yielding consumer loans as the consolidated loan portfolio increased in commercial loans and leases. Interest Expense Total interest expense increased $588 thousand or 2.1% from 1995. The increase is primarily due to increases in the volume of time deposits and the rate paid on time deposits. Interest on interest bearing demand deposits decreased $104 thousand due to a 19 basis point decline in the average rate paid in spite of a $12.7 million, or 5.2%, increase in the average balance. Interest expense for savings deposits was similar. A decline of $57 thousand was caused by a 23 basis point decline in rate in spite of a 4.0% increase in the average balance on savings deposits. The average balance of time deposits increased $15.2 million or 4.9% and the average rate paid increased slightly from 5.55% to 5.61%. The result is a $1.1 million increase in interest expense on time deposits. Interest on securities sold under agreements to repurchase declined $270 thousand due to slight declines in both volume and rate. Interest on other borrowed funds also decreased slightly, $38 thousand, due primarily to a decline in volume as the Company was able to use increasing deposits at lower rates as a cheaper source of funds. Net interest income is the most significant component of the Company's earnings. Net interest income is the excess of the interest income earned on assets over the interest paid for funds to support those assets. The following table represents the major components of interest earning assets and interest bearing liabilities on a tax equivalent basis (TE) where tax exempt income is adjusted upward by an amount equivalent to the federal income taxes that would have been paid if the income had been fully taxable (assuming a 34% tax rate). Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential (In thousands)
December 31, 1996 1995 1994 Average Average Average Average Average Average Balances Interest Rate Balances Interest Rate Balances Interest Rate Earning assets Investment securities Taxable $155,738 $9,121 5.86% $136,028 $ 7,923 5.82% $126,772 $ 6,106 4.82% Nontaxable 1 61,981 4,154 6.70 50,852 3,376 6.64 50,476 3,447 6.83 Time deposits with banks, federal funds sold and securities purchased under agreements to resell 51,619 2,714 5.26 51,752 3,042 5.88 56,052 2,398 4.28 Loans 1,2,3 546,040 53,140 9.73 540,632 54,350 10.05 511,492 47,301 9.25 Total earning assets 815,378 69,129 8.48 779,264 68,691 8.81 744,792 59,252 7.96 Less allowance for loan losses 8,610 8,774 8,982 Total earning assets, net of allowance for loan losses 806,768 770,490 735,810 Non-earning assets Cash and due from banks 59,353 57,545 70,433 Bank premises and other equipment 19,614 20,122 19,950 Other assets 12,874 14,001 13,362 Total assets $898,609 $862,158 $839,555 Interest bearing liabilities Deposits Interest bearing demand $258,606 7,175 2.77 $245,926 7,279 2.96 $247,554 6,742 2.72 Savings 55,529 1,646 2.96 53,417 1,703 3.19 55,853 1,612 2.89 Time 326,844 18,349 5.61 311,668 17,292 5.55 274,812 11,817 4.30 Securities sold under agreements to repurchase 25,706 1,314 5.11 28,889 1,584 5.48 33,348 1,209 3.63 Other borrowed funds 3,719 219 5.89 4,444 257 5.78 3,320 206 6.20 Total interest bearing liabilities 670,404 28,703 4.28 644,344 28,115 4.36 614,887 21,586 3.51 Non-interest bearing liabilities Commonwealth of Kentucky deposits 25,713 26,093 32,419 Demand deposits - other deposits 86,486 84,666 89,073 Other liabilities 8,720 5,212 6,059 Total liabilities 791,323 760,315 742,438 Shareholders' equity 107,286 101,843 97,117 Total liabilities and shareholders' equity $898,609 $862,158 $839,555 Net interest income (TE) 40,426 40,576 37,666 TE basis of adjustment (1,644) (1,430) (1,502) Net interest income $38,782 $39,146 $36,164 Net interest spread (TE) 4.20% 4.45% 4.45% Net interest margin (TE) 4.96% 5.21% 5.06%
1 Income and yield stated at a fully tax equivalent basis (TE), using a 34% tax rate. 2 Loan balances include principal balances on non-accrual loans. 3 Loan fees included in interest income amounted to $1,977,000, $1,781,000, and $1,731,000 in 1996, 1995 and 1994, respectively. Net Interest Income Net interest income (TE) decreased $150 thousand. Interest income increased $438 thousand, while interest expense increased by $588 thousand. The change in the spread between rates earned and paid and net interest margin are summarized below: 1996 1995 % change Spread between rates earned and paid 4.20% 4.45% (5.62)% Net interest margin 4.96% 5.21% (4.80)% The declines in the net interest spread and the net interest margin are partially due to a decline in higher yielding consumer loans. As seen in the Interest Rate and Interest Differential table, slightly less interest income was earned in 1996 on a larger average loan balance when compared to 1995. The following table is an analysis of the change in net interest income: Analysis of Changes in Net Interest Income (tax equivalent basis):
Variance Variance Variance Attributed to Variance Attributed to (In thousands) 1996/1995 1 Volume Rate 1995/1994 1 Volume Rate Interest income Taxable investment securities $1,198 $1,154 $ 44 $1,817 $ 470 $1,347 Nontaxable investment securities 2 778 747 31 (71) 26 (97) Time deposits with banks, federal funds sold and securities purchased under agreement to resell (328) (8) (320) 644 (172) 816 Loans 2 (1,210) 540 (1,750) 7,049 2,803 4,246 Total interest income 438 2,433 (1,995) 9,439 3,127 6,312 Interest expense Interest bearing demand deposits (104) 365 (469) 537 (44) 581 Savings deposits (57) 66 (123) 91 (68) 159 Time deposits 1,057 850 207 5,475 1,728 3,747 Securities sold under agreements to repurchase (270) (168) (102) 375 (145) 520 Other borrowed funds (38) (43) 5 51 66 (15) Total interest expense 588 1,070 (482) 6,529 1,537 4,992 Net interest income $ (150) $1,363 $(1,513) $2,910 $1,590 $1,320 Percentage change 100.0% (908.7)% 1,008.7% 100% 54.6% 45.4%
1 The changes which are not solely due to rate or volume are allocated on a percentage basis, using the absolute values of rate and volume variances as a basis for allocation. 2 Income stated at fully tax equivalent basis using a 34% tax rate. As the table indicates, the decrease is nearly equally attributed to an increase in volume and a decrease in the net interest spread. Asset Quality The provision for loan losses represents charges made to earnings to maintain an adequate allowance. Each subsidiary determines its level for the allowance and maintains it at an amount believed to be sufficient to absorb possible losses that may be experienced in the credit portfolio. The following factors are used in establishing an appropriate allowance: A careful assessment of the financial condition of individual borrowers A realistic determination of the value and adequacy of underlying collateral A thorough review of historical loss experience The condition of the local economy A comprehensive analysis of the levels and trends of loan categories A review of delinquent and criticized loans The provision for loan losses increased $435 thousand compared to 1995. The Company had net charge-offs of $3.9 million, down $251 thousand from $4.1 million in 1995. The allowance was 1.57% of net loans, relatively unchanged from 1.56% at the end of 1995. Management feels the current reserve is adequate to cover any potential future losses within the loan portfolio. Management also continues to emphasize collection efforts and evaluation of risks within the portfolio. The table below summarizes the loan loss experience for the past five years. Year Ended December 31, (In thousands) 1996 1995 1994 1993 1992 Balance of allowance for loan losses at beginning of period $ 8,472 $ 8,889 $ 8,547 $ 8,261 $ 7,917 Loans charged off: Commercial, financial and agricultural 1,609 2,390 741 1,826 2,427 Real estate 920 118 416 638 611 Installment loans to individuals 1,862 2,376 1,467 1,483 1,233 Leasing financing 18 Total loans charged off 4,409 4,884 2,624 3,947 4,271 Recoveries of loans previously charged off: Commercial, financial and agricultural 144 192 193 343 651 Real estate 38 146 230 5,409 371 Installment loans to individuals 334 402 418 507 357 Total recoveries 516 740 841 6,259 1,379 Net loans charged off (recovered) 3,893 4,144 1,783 (2,312) 2,892 Additions to allowance charged (credited) to expense 4,162 3,727 2,125 (2,026) 3,236 Balance at end of period $ 8,741 $ 8,472 $ 8,889 $ 8,547 $ 8,261 Average loans net of unearned income $ 546,040 $ 540,632 $ 511,492 $ 467,738 $ 473,271 Ratio of net charge offs (recoveries) during period to average loans, net of unearned income .71% .77% .35% (.49)% .61% The following is an estimate of the breakdown of the allowance for loan losses by type for the date indicated: Year Ended December 31, (In thousands) 1996 1995 1994 1993 1992 Commercial, financial and agricultural $3,806 $4,138 $6,427 $6,500 $6,512 Real estate 2,974 1,928 1,027 1,004 805 Installment loans to individuals 1,304 2,176 1,264 1,035 944 Direct lease financing 657 230 171 8 $8,741 $8,472 $8,889 $8,547 $8,261 Noninterest Income Noninterest income for 1996 reached $15.0 million, up $3.3 million or 27.6% from $11.7 million in 1995. The increase is due primarily to the gain on sale of loans of Money One, the Company's consumer finance subsidiary. Service charges on deposits and trust fees also experienced moderate growth. Noninterest Expense Noninterest expense decreased $626 thousand to $31.8 million. The decline is a result of a $109 thousand decrease in equipment expense and an $815 thousand decrease in FDIC insurance. The FDIC lowered premium rates in 1995 from $.23 per $100 to $.04 per $100. Only a nominal premium was charged in 1996. Rates are expected to be approximately $.013 per $100 in 1997. These declines were partially offset by a $458 thousand, or 2.7% increase in salaries and benefits and slight increases in occupancy expense and bank franchise tax. Management implemented a self-insured medical plan effective January 1, 1996 that has helped to control rising costs. The Commonwealth of Kentucky passed new statutes revising the bank franchise tax during 1996 which will increase that expense in 1997. Income Tax Income tax expense increased $806 thousand, or 18.4% due to the increase in earnings. The effective tax rate for 1996 was 29.0%, down 60 basis points from last year. Financial Condition On December 31, 1996, assets were $925 million, an increase of $19 million or 2.1% from year end 1995. Average assets for 1996 increased $36 million, or 4.2% to $899 million. Earning assets, primarily loans and investments, averaged $815 million, up $36 million or 4.6%. Loans As of December 31, 1996, net loans totaled $558 million, up $15 million or 2.8% from $543 million in the prior year. Although the Company's loan balance decreased by $11.5 million around mid year due to the sale of Money One's loans, the Company's affiliate banks made up for this decline by year end. The effect of these changes can be seen in the loan portfolio composition table. Installment loans decreased $14 million or 13.9% primarily as a result of the sale of Money One's loans and cessation of operations. All other loan categories increased: direct leasing by $7 million or 34.5% and mortgage lending by $12 million or 4.2%. The composition of the loan portfolio is summarized in the table below:
Year Ended December 31, (In thousands) 1996 % 1995 % 1994 % 1993 % 1992 % Commercial, financial and agricultural $120,256 21.2% $114,412 20.6% $115,068 21.1% $108,755 22.2% $111,089 23.6% Real estate - construction 27,098 4.8 26,380 4.8 28,755 5.3 21,772 4.4 18,577 3.9 Real estate - mortgage 305,229 53.8 292,913 52.8 279,264 51.3 262,074 53.5 247,054 52.5 Installment 85,720 15.1 99,571 17.9 107,450 19.7 95,544 19.5 93,676 19.9 Direct leasing 29,144 5.1 21,666 3.9 14,029 2.6 2,200 0.4 215 0.1 Total $567,447 100.0% $554,942 100.0% $544,566 100.0% $490,345 100.0% $470,611 100.0%
The following table indicates the amount of loans (excluding real estate mortgages, consumer loans and direct lease financing) outstanding at December 31, 1996, which, based on remaining scheduled repayments of principal, are due in the periods indicated. Maturing Within After One But After (In thousands) One Year Within Five Years Five Years Total Commercial, financial and agricultural $ 96,908 $20,946 $2,402 $120,256 Real estate - construction 25,463 1,592 43 27,098 $122,371 $22,538 $2,445 $147,354 The table below shows the amount of loans (excluding real estate mortgages, consumer loans and direct lease financing) outstanding at December 31, 1996, which are due after one year classified according to sensitivity to changes in interest rates. Interest Sensitivity Fixed Variable (In thousands) Rate Rate Due after one but within five years $19,396 $3,142 Due after five years 2,356 89 $21,752 $3,231 Temporary Investments Federal funds sold and securities purchased under agreement to resell are the primary components of temporary investments. These funds help in the management of liquidity and interest rate sensitivity. In 1996, temporary investments averaged $52 million, unchanged from their average in 1995. Temporary investment funds are reallocated as loan demand presents the opportunity. Investment Securities The majority of the investment security portfolio is comprised of U.S. Treasury securities, Federal agency securities, tax-exempt securities, and mortgage- backed securities. Total investment securities were $221 million on December 31, 1996, a decrease of $6 million, or 2.7% from year end 1995. The funds made available from maturing or called bonds have been redirected to fund new loan growth as needed. Remaining funds have been used to increase our holding of tax-free obligations and mortgage-backed securities. Obligations of states and political subdivisions are the primary means of managing the Company's tax position. The alternative minimum tax is not expected to impact the Company's ability to acquire tax-free obligations in the near future as they become available at an attractive yield. Available for sale securities and held to maturity securities were $109 million and $112 million, respectively. Total investment securities averaged $218 million, an increase of $31 million, or 16.5% from year end 1995. Net unrealized losses, net of tax effect, on available for sale securities, were $362 thousand on December 31, 1996. The following table summarizes the carrying values of investment securities on December 31, 1996, 1995 and 1994. The investment securities are divided into available for sale and held to maturity securities. Available for sale securities are carried at the estimated fair value and held to maturity securities are carried at amortized cost. December 31, (In thousands) 1996 1995 1994 Available Held to Available Held to Available Held to for sale maturity for sale maturity for sale maturity U.S. Treasury securities $ 27,453 $ 2,000 $ 16,668 $ 15,994 $ 8,745 $ 45,559 Obligations of other U.S. Government agencies 62,744 28,581 77,624 34,732 55,855 18,192 Obligations of states and political subdivisions 62,839 54,696 51,095 Mortgage-backed securities 15,329 14,680 10,251 13,151 4,819 5,131 Other securities 3,765 3,509 1,390 2,418 3,047 500 Total $109,291 $111,609 $105,933 $120,991 $72,466 $120,477 The following is an analysis of the maturity distribution and weighted average interest rates of investment securities at December 31, 1996. For purposes of this analysis, available for sale securities are stated at fair value and held to maturity securities are valued at amortized cost.
Within After One But After Five But After Available for Sale One Year Within Five Years Within Ten Years Ten Years (In thousands) Amount Rate Amount Rate Amount Rate Amount Rate U.S. Treasury securities $16,042 5.54% $11,411 5.55% Obligations of other U.S. Government agencies 33,401 5.11 29,343 5.64 Mortgage-backed securities 509 7.46 4,901 6.58 $6,103 5.42% $3,816 6.85% Other securities 461 5.42 381 7.52 2,923 6.99 Total $50,413 5.27% $46,036 5.73% $6,103 5.42% $6,739 6.91%
Within After One But After Five But After Held to Maturity One Year Within Five Years Within Ten Years Ten Years (In thousands) Amount Rate Amount Rate Amount Rate Amount Rate U.S. Treasury securities $ 1,000 7.64% $ 1,000 5.53% Obligations of other U.S. Government agencies 9,000 6.23 17,331 5.94 $ 2,250 7.26% States and political subdivisions 9,097 6.70 34,963 7.03 16,963 7.22 $1,816 7.64% Mortgage-backed securities 1,187 8.13 6,147 6.46 7,346 7.07 Other securities 288 5.15 1,771 5.90 1,450 7.16 Total $20,572 6.60% $61,212 6.60% $28,009 7.18% $1,816 7.64%
The calculation of the weighted average interest rates for each category is based on the weighted average costs of the securities. The weighted average tax rates on exempt state and political subdivisions is computed on a taxable equivalent basis using a 34% tax rate. Deposits On December 31, 1996, deposits totaled $786 million, an increase of $31 million, or 4.2% from year end 1995. Deposits averaged $753 million, an increase of $31 million, or 4.4% from 1995. During 1996 total average interest bearing deposits increased $30 million, or 4.9% to $641 million while average noninterest bearing deposits increased $1 million, or 1.3% to $112 million. The primary increase in the deposit base has been with interest bearing demand deposits and time deposits. Average interest bearing demand deposits increased $13 million, or 5.2% while average time deposits increased $15 million, or 4.9%. A summary of average balances and rates paid on deposits follows: 1996 1995 1994 Average Average Average Average Average Average (In thousands) Balance Rate Balance Rate Balance Rate Noninterest bearing demand deposits $112,199 0.00% $110,759 0.00% $121,492 0.00% Interest bearing demand deposits 258,606 2.77 245,926 2.96 247,554 2.72 Savings deposits 55,529 2.96 53,417 3.19 55,853 2.89 Time deposits 326,844 5.61 311,668 5.55 274,812 4.30 $753,178 $721,770 $699,711 Maturities of time deposits of $100,000 or more outstanding at December 31, 1996 are summarized as follows: Time Deposits (In thousands) >$100,000 3 months or less $19,316 Over 3 through 6 months 11,112 Over 6 through 12 months 12,432 Over 12 months 9,839 $52,699 Short-term Borrowings Securities sold under agreement to repurchase: (In thousands) 1996 1995 1994 Amount outstanding at year-end $16,594 $34,638 $43,525 Maximum outstanding at any month-end 59,452 55,929 43,525 Average outstanding 25,706 28,889 33,348 Weighted average prime rate during the year 8.27% 8.83% 7.14% Weighted average interest rate at year-end 5.17 5.48 3.63 Such borrowings are generally on an overnight basis. Nonperforming Assets Nonperforming assets decreased $383 thousand, or 5.5% to $6.6 million at year end 1996. As a percentage of loans and other real estate owned, nonperforming assets were 1.2% in 1996 and 1.3% in 1995. Since 1992, nonperforming assets have decreased $11 million, or 62.5%. The largest reductions have been in other real estate owned and restructured loans. This trend is the result of management's continued efforts to improve the quality of the loan portfolio. The Company's loan policy includes strict guidelines for approving and monitoring loans. The table below is a five year summary of nonperforming assets. Year Ended December 31, (In thousands) 1996 1995 1994 1993 1992 Loans accounted for on non-accrual basis $2,938 $2,897 $ 3,913 $ 1,565 $ 3,981 Loans contractually past due ninety days or more 1,822 1,713 1,056 1,402 2,730 Restructured loans 1,814 1,571 3,538 3,734 5,266 Other real estate owned 776 380 1,169 5,541 Total nonperforming assets $6,574 $6,957 $ 8,887 $ 7,870 $17,518 Effects of Inflation The majority of the Company's assets and liabilities are monetary in nature. Therefore, the Company differs greatly from most commercial and industrial companies that have significant investments in nonmonetary assets, such as fixed assets and inventories. However, inflation does have an important impact on the growth of assets in the banking industry and on the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation also affects other expenses, which tend to rise during periods of general inflation. Management believes the most significant impact on financial and operating results is the Company's ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities in order to protect against the effects of wide interest rate fluctuations. Liquidity and Interest Rate Sensitivity The liquidity of the Company is dependent on the receipt of dividends from its subsidiary banks (see Note 17 to the financial statements). Management expects that in the aggregate, its subsidiary banks will continue to have the ability to dividend adequate funds to the Company. The Company's objective as it relates to liquidity is to ensure 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. Those sources of funds are: The subsidiary banks' core deposits consisting of both business and non- business deposits Cash flow generated by repayment of loan principal and interest 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. Interest Rate Sensitivity Since it is extremely difficult to accurately predict interest rate movements, it is management's intention to maintain the cumulative interest sensitivity gap at the one year time frame between plus or minus 10% of total assets. The gap position may be managed by (1) purchasing investment securities with a maturity date within the desired time frame, (2) offering interest rate incentives to encourage loan customers to choose the desired maturity, and (3) offering interest rate incentives to encourage deposit customers to choose the desired maturity. The following chart illustrates interest rate sensitivity at December 31, 1996 for various time periods. The purpose of this GAP chart is to measure interest rate risk utilizing the repricing intervals of the interest sensitive assets and liabilities. Rising interest rates are likely to increase net interest income in a positive GAP position while falling interest rates are beneficial in a negative GAP position. The Company has a negative GAP position through twelve months, but then shifts to a positive GAP position between one and five years. This positioning is due to management's anticipated economic outlook and other competitive factors. After Three After Months But One Year But Within Within Twelve Within Five After (In millions) Three Months Months Years Five Years Total Interest earning assets Investment securities $ 57.8 $ 32.9 $ 90.4 $ 39.8 $220.9 Federal funds sold 69.9 69.9 Loans, net of unearned income 210.6 176.4 162.3 8.9 558.2 Total $ 338.3 $ 209.3 $ 252.7 $ 48.7 $849.0 Percentage of total interest earning assets 39.8% 24.7% 29.8% 5.7% 100.0% Rate sensitive sources of funds used to finance interest earning assets Interest bearing demand deposits $303.7 $303.7 Savings 58.5 58.5 Time 93.2 $119.5 $104.1 $3.8 320.6 Other borrowed funds 19.0 1.2 20.2 Total $474.4 $120.7 $104.1 $3.8 $703.0 Percent of total rate sensitive sources of funds 67.5% 17.2% 14.8% 0.5% 100.0% Interest sensitivity gap (136.1) 88.6 148.6 44.9 146.0 Cumulative interest sensitivity gap (136.1) (47.5) 101.1 46.0 Interest sensitive assets to interest sensitive liabilities 0.71 1.73 2.43 12.82 1.21 Cumulative ratio of interest sensitive assets to interest sensitive liabilities 0.71 0.92 1.14 1.21 Cumulative gap as a percent of total earning assets (16.03)% (5.59)% 11.91% 17.20% Shareholders' Equity Shareholders' equity was $110 million on December 31, 1996, increasing $4.7 million, or 4.4% from year end 1995. The increase in shareholders' equity is due to 1996 net income of $12.7 million offset by the Company's purchase of 69,400 shares of common stock at a cost of $2.7 million and declaration of dividends totaling $5.7 million. The Company's Board of Directors approved a 13.9% increase in the quarterly dividend rate in the fourth quarter of 1996 from $.36 per share to $.41 per share. The Company's capital ratios as of December 31, 1996, 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 18.35% 4.00% 6.00% Total risk based 19.60 8.00 10.00 Leverage 11.91 4.00 5.00 The capital ratios of all the subsidiary banks, on an individual basis, were well in excess of the applicable minimum regulatory capital ratio requirements at December 31, 1996. The table below is an analysis of dividend payout ratios and equity to asset ratios for five years. December 31, 1996 1995 1994 1993 1992 Percentage of dividends declared to net income 45.21% 50.24% 46.40% 39.78% 66.26% Percentage of average shareholders' equity to average total assets 11.94 11.81 11.57 11.22 10.85 Shareholder Information As of January 1, 1997, there were 864 shareholders of record. This figure does not include individual participants in security position listings. Stock Prices Farmers Capital Bank Corporation's stock is traded on the National Association of Security Dealers Automated Quotation System (NASDAQ) SmallCap Market tier of The NASDAQ Stock Market, with sales prices reported under the symbol: FFKT. The table below is an analysis of the stock prices and dividends declared for 1996 and 1995. Stock Prices Dividends 1996 High Low Declared Fourth Quarter $40.75 $39.25 $0.41 Third Quarter 40.50 34.50 0.36 Second Quarter 41.50 33.50 0.36 First Quarter 42.50 38.50 0.36 1995 Fourth Quarter $43.50 $37.00 $0.36 Third Quarter 39.50 33.00 0.33 Second Quarter 37.00 32.50 0.33 First Quarter 38.00 35.50 0.33 Dividends declared per share increased $.14 or 10.4% and $.12, or 9.8% for the years 1996 and 1995, respectively. Accounting Requirements Effective in 1997 In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". Under this standard, accounting for transfers and servicing of financial assets and extinguishments of liabilities is based on control. After a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. This statement applies prospectively in fiscal years beginning after December 31, 1996. The Company does not expect the implementation of this statement to have a material affect on the financial statements. 1995 Compared with 1994 Net income was $10.39 million in 1995 compared to $10.25 million in 1994, an increase of $139 thousand. Net income per share increased from $2.65 to $2.69. The Company benefited during the second quarter of 1994 from a significant nonrecurring recovery of prior year losses amounting to $503 thousand after taxes. Adjusting for the nonrecurring recovery, 1995 net income is $642 thousand or 6.6% higher than net income for 1994. The performance ratios also increased after adjusting for the nonrecurring recovery. The return on average assets and average equity increased from 1.16% to 1.21% and from 9.99% to 10.20%, respectively. Total interest income, on a tax equivalent basis was $68.7 million, up $9.4 million, or 15.9% from 1994. The increase is due primarily to increases in interest income on loans and taxable investment securities which were rate driven. The yield on total earning assets increased from 8.0% to 8.8%. This was accomplished by moving balances from lower yielding asset categories to higher earning loans. Total interest expense was $28.1 million, up $6.5 million, or 30.2%. Time deposits experienced increases both in average balance and in rate paid accounting for $5.5 million of the increase in total interest expense. Net interest income on a tax equivalent basis increased 7.7% to $40.6 million. The growth was the result of a $34.5 million increase in average earning assets and an 85 basis point increase in the average rate earned on earning assets. The spread between rates earned and paid was 4.45%, unchanged from 1994, while the net interest margin increased 3% from 5.06% to 5.21%. Noninterest income increased $212 thousand to $11.7 million in 1995. After considering that in 1994, non interest income was inflated by a $758 thousand nonrecurring recovery, the actual increase would have been $970 thousand. The majority of the improvement came from increased non-sufficient funds and overdraft fees. Noninterest expense increased $1.3 million or 4.3% despite the significant reduction in FDIC insurance premiums. The $686 thousand decrease in deposit insurance expense was offset by an $835 thousand increase in salaries and employee benefits. Equipment expenses and expenses related to other real estate owned all experienced modest increases. Income tax expense was $4.4 million in 1995, up $108 thousand from 1994, which correlates to the increase in income before taxes. The effective tax rate for 1995 was 29.6% compared to 29.4% in 1994. On December 31, 1995, the allowance for loan losses totaled $8.5 million or 1.6% of net loans, down slightly from 1994. Nonperforming assets declined $2 million or 21.7% to $7 million at December 31, 1995. Since 1991, nonperforming assets have decreased $16 million or 69.6%. Average assets, average earning assets, average loans, and average deposits increased between 1995 and 1994 by 2.7%, 4.6%, 5.7% and 3.1%, respectively. Shareholders' equity was $105 million on December 31, 1995, an increase of $5 million or 4.9% from 1994. Item 8 - Financial Statements and Supplementary Data Report of Independent Accountants To the Board of Directors and Shareholders Farmers Capital Bank Corporation We have audited the accompanying consolidated balance sheets of Farmers Capital Bank Corporation and Subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Farmers Capital Bank Corporation and Subsidiaries as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 5 to the consolidated financial statements, in 1995 the Company changed its method of accounting for impaired loans. Also, as discussed in Note 3 to the consolidated financial statements, in 1994, the Company changed its method of accounting for certain investments in debt and equity securities. /s/ Coopers & Lybrand L.L.P. Louisville, Kentucky January 16, 1997 Consolidated Balance Sheets December 31, (In thousands, except share figures) 1996 1995 Assets Cash and cash equivalents: Cash and due from banks $ 52,073 $ 41,126 Interest bearing deposits in other banks 758 688 Federal funds sold and securities purchased under agreement to resell 69,915 68,370 Total cash and cash equivalents 122,746 110,184 Investment securities: Available for sale 109,291 105,933 Held to maturity 111,609 120,991 Total investment securities 220,900 226,924 Loans 567,447 554,942 Less: Allowance for loan losses (8,741) (8,472) Unearned income (9,198) (11,762) Loans, net 549,508 534,708 Bank premises and equipment 19,320 19,916 Interest receivable 8,129 7,889 Deferred income taxes 613 1,363 Other assets 4,103 5,129 Total assets $925,319 $906,113 Liabilities Deposits: Noninterest bearing $103,488 $109,490 Interest bearing 682,822 645,371 Total deposits 786,310 754,861 Other borrowed funds 20,165 38,524 Dividends payable 1,558 1,392 Interest payable 2,204 2,370 Other liabilities 5,486 4,037 Total liabilities 815,723 801,184 Commitments and contingencies Shareholders' Equity Common stock, par value $.25 per share; 4,804,000 shares authorized; 3,796,982 and 3,866,382 shares issued and outstanding at December 31, 1996 and 1995, respectively 949 967 Capital surplus 8,931 9,094 Retained earnings 100,078 95,694 Net unrealized loss on securities available for sale, net of tax (362) (826) Total shareholders' equity 109,596 104,929 Total liabilities and shareholders' equity $925,319 $906,113 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Income For the years ended December 31, (In thousands, except per share data) 1996 1995 1994 Interest income Interest and fees on loans $52,778 $53,965 $46,951 Interest on investment securities: Taxable 9,121 7,923 6,106 Nontaxable 2,872 2,331 2,295 Interest on deposits in other banks 61 116 122 Interest on federal funds sold and securities purchased under agreement to resell 2,653 2,926 2,276 Total interest income 67,485 67,261 57,750 Interest expense Interest on deposits 27,170 26,274 20,171 Interest on other borrowed funds 1,533 1,841 1,415 Total interest expense 28,703 28,115 21,586 Net interest income 38,782 39,146 36,164 Provision for loan losses 4,162 3,727 2,125 Net interest income after provision for loan losses 34,620 35,419 34,039 Noninterest income Service charges and fees on deposits 5,702 5,425 4,743 Trust income 1,251 1,176 1,202 Investment gains (losses) net 10 2 (74) Gain on sale of Money One loans 3,206 -- -- Other 4,820 5,140 5,660 Total noninterest income 14,989 11,743 11,531 Noninterest expense Salaries and employee benefits 17,246 16,788 15,953 Occupancy expenses, net 1,995 1,982 1,991 Equipment expenses 2,603 2,712 2,554 Bank shares tax 1,045 1,000 1,097 Deposit insurance expense 11 826 1,512 Other 8,875 9,093 7,949 Total noninterest expense 31,775 32,401 31,056 Income before income taxes 17,834 14,761 14,514 Income tax expense 5,178 4,372 4,264 Net income $12,656 $10,389 $10,250 Net income per common share $3.29 $2.69 $2.65 Weighted average shares outstanding 3,842 3,866 3,866 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Changes in Shareholders' Equity For the years ended December 31, 1996, 1995 and 1994 (In thousands, except per share data) Net Unrealized Gain(Loss) Total Common Capital Retained on Securities Shareholders' Stock Surplus Earnings Available for Sale Equity Balance at January 1, 1994 $967 $9,094 $85,030 $95,091 Cumulative effect of net unrealized gain on securities available for sale, net of tax $182 182 Cash dividends declared, $1.23 per share (4,756) (4,756) Net income 10,250 10,250 Net unrealized loss on securities available for sale, net of tax (703) (703) Balance at December 31, 1994 967 9,094 90,524 (521) 100,064 Cash dividends declared, $1.35 per share (5,219) (5,219) Net income 10,389 10,389 Net unrealized loss on securities available for sale, net of tax (305) (305) Balance at December 31, 1995 967 9,094 95,694 (826) 104,929 Cash dividends declared $1.49 per share (5,722) (5,722) Purchase of 69,400 shares of common stock (18) (163) (2,550) (2,731) Net income 12,656 12,656 Net unrealized gain on securities available for sale net of tax 464 464 Balance at December 31, 1996 $949 $8,931 $100,078 $(362) $109,596 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Cash Flows For the years ended December 31, (In thousands) 1996 1995 1994 Cash flows from operating activities Net income $ 12,656 $ 10,389 $ 10,250 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,477 2,634 2,553 Net amortization of investment security premiums and discounts: Available for sale (388) (818) 117 Held to maturity 111 238 326 Provision for loan losses 4,162 3,727 2,125 Mortgage loans originated for sale (8,017) (14,730) (3,840) Proceeds from sale of mortgage loans 7,955 14,730 3,840 Deferred income tax expense (benefit) 512 732 (18) Gain on sale of mortgage loans (18) Gain on sale of Money One loans (3,206) (Gain) loss on sale of fixed assets (150) 32 (Gain) loss on sale or call of investment securities: Available for sale 74 Held to maturity (10) Changes in: Interest receivable (240) (1,111) (358) Other assets 491 (1,078) 785 Interest payable (166) 655 240 Other liabilities 1,449 476 589 Net cash provided by operating activities 17,618 15,844 16,715 Cash flows from investing activities Proceeds from maturities and calls of investment securities: Available for sale 132,172 84,897 73,841 Held to maturity 39,175 51,855 21,609 Proceeds from sales of investment securities: Available for sale 11,603 Purchases of investment securities: Available for sale (134,440) (118,004) (77,005) Held to maturity (29,894) (52,607) (35,431) Loans originated for investment, net of principal collected (31,123) (14,134) (53,336) Purchases of bank premises and equipment (1,594) (1,413) (921) Proceeds from sale of equipment 399 6 Proceeds from sale of Money One loans 15,447 Net cash used in investing activities (9,858) (49,406) (59,634) Cash flows from financing activities Net increase in deposits 31,449 58,166 39,262 Dividends paid (5,557) (5,103) (4,640) Purchase of common stock (2,731) Net (decrease) increase in other borrowed funds (18,359) (9,868) 11,064 Net cash provided by financing activities 4,802 43,195 45,686 Net change in cash and cash equivalents 12,562 9,633 2,767 Cash and cash equivalents at beginning of year 110,184 100,551 97,784 Cash and cash equivalents at end of year $122,746 $110,184 $100,551 Supplemental disclosures Cash paid during the year for: Interest $ 28,869 $ 27,460 $ 21,346 Income taxes 4,210 3,730 4,255 Cash dividend declared and unpaid 1,558 1,392 1,276 The accompanying notes are an integral part of the consolidated financial statements. 1. Summary of Significant Accounting Policies The accounting and reporting policies of Farmers Capital Bank Corporation and Subsidiaries conform to generally accepted accounting principles and general practices applicable to the banking industry. The more significant accounting policies are summarized below: Basis of Presentation and Organization 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 Company is predominantly engaged in the business of receiving deposits from and making real estate, commercial and consumer loans to businesses and consumers in Central Kentucky. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. Reclassifications Certain amounts in the accompanying consolidated financial statements presented for prior years have been reclassified to conform with the 1996 presentation. These reclassifications do not affect net income or shareholders' equity as previously reported. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing demand deposits in other banks, federal funds sold and securities purchased under agreements to resell. Generally, federal funds sold and securities purchased under agreements to resell are purchased and sold for one-day periods. Investment Securities All investments in debt securities and all investments in equity securities are classified into three categories. Securities that management has positive intent and ability to hold until maturity are classified as held to maturity. Securities that are bought and held specifically for the purpose of selling them in the near term are classified as trading securities. All other securities are classified as available for sale. Securities are designated as available for sale if management intends to use such securities in its asset/liability management strategy and therefore such securities may be sold in response to changes in interest rates and prepayment risk. Securities classified as trading and available for sale are carried at market value. Unrealized holding gains and losses for trading securities are included in current income. Unrealized holding gains and losses for available for sale securities are reported net as a separate component of shareholders' equity until realized. Investments classified as held to maturity are carried at amortized cost. Realized gains and losses on any sales of securities are computed on the basis of specific identification of the adjusted cost of each security and are included in noninterest income. Loans Loans are stated at the principal amount outstanding. Interest income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Accrual of interest is adjusted or discontinued on a loan when, in the opinion of management, its collection becomes doubtful. Provision for Loan Losses The provision for loan losses charged to operating expenses is an amount that is sufficient to maintain the allowance for loan losses at an adequate level based on management's best estimate of possible future loan losses. Management's determination of the adequacy of the allowance is based on such considerations as the current condition and volume of the Company's loan portfolios, economic conditions within the Company's service areas, review of specific problem loans, and any other factors influencing the collectibility of the loan portfolios. Other Real Estate Other real estate owned and held for sale included with other assets on the accompanying consolidated balance sheets includes properties acquired by the Company through actual loan foreclosures. Other real estate owned is carried at the lower of cost or fair value less estimated costs to sell. Fair value is the amount that the Company could reasonably expect to receive in a current sale between a willing buyer and a willing seller, other than in a forced or liquidation sale. Fair value of assets is measured by the market value based on comporable sales. Any reduction to fair value from the fair value recorded at the time of acquisition is accounted for as a valuation reserve. Deferred Income Taxes Deferred income taxes are recognized for the tax consequences on future years of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Bank Premises and Equipment Bank premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method over the estimated useful lives for furniture, equipment and buildings. Leasehold improvements are amortized over the shorter of the estimated useful lives or terms of the related leases on the straight-line method. Maintenance, repairs and minor improvements are charged to operating expenses as incurred and major improvements are capitalized. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Earnings Per Share Earnings per share is calculated on the basis of the weighted average number of common shares outstanding. 2. Restrictions on Cash and Due From Banks Included in cash and due from banks are certain noninterest bearing deposits that are held at the Federal Reserve Bank and correspondent banks in accordance with regulatory reserve requirements specified by the Federal Reserve Board of Governors. The balance requirement was $9,990,000 at December 31, 1996 and $8,988,000 at December 31, 1995. 3. Investment Securities Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires investments in equity securities that have a readily determinable fair value and investments in debt securities to be classified into three categories, as follows: held to maturity debt securities, trading securities, and available for sale securities. Investments categorized as available for sale had an estimated fair value in excess of carrying value of $276,000 at January 1, 1994, and had the effect of increasing shareholders' equity by $182,000 (net of tax effect of $94,000). There was no impact on the Company's consolidated net income as a result of the adoption of SFAS No. 115. The following summarizes the amortized cost and estimated fair values of the securities portfolio at December 31, 1996. The summary is divided into available for sale and held to maturity securities. Gross Gross Estimated December 31, 1996 (In thousands) Amortized Unrealized Unrealized Fair Available for Sale Cost Gains Losses Value U.S. Treasury $ 27,485 $ 17 $ 49 $27,453 Obligations of U.S. Government agencies 63,287 10 553 62,744 Mortgage-backed securities 15,296 46 13 15,329 Other securities 3,772 7 3,765 Total securities - available for sale $109,840 $ 73 $622 $109,291 Held to Maturity U.S. Treasury $ 2,000 $ 1 $ 5 $ 1,996 Obligations of U.S. Government agencies 28,581 22 192 28,411 Obligations of states and political subdivisions 62,839 511 344 63,006 Mortgage-backed securities 14,680 145 24 14,801 Other securities 3,509 17 12 3,514 Total securities - held to maturity $111,609 $696 $577 $111,728 The following summarizes the amortized cost and estimated fair values of the securities portfolio at December 31, 1995. Gross Gross Estimated December 31, 1995 (In thousands) Amortized Unrealized Unrealized Fair Available for Sale Cost Gains Losses Value U.S. Treasury $ 16,609 $ 70 $ 11 $ 16,668 Obligations of U.S. Government agencies 78,992 52 1,420 77,624 Mortgage-backed securities 10,210 41 10,251 Other securities 1,372 18 1,390 Total securities - available for sale $107,183 $181 $1,431 $105,933 Held to Maturity U.S. Treasury $ 15,994 $ 79 $ 6 $ 16,067 Obligations of U.S. Government agencies 34,732 192 176 34,748 Obligations of states and political subdivisions 54,696 721 256 55,161 Mortgage-backed securities 13,151 214 31 13,334 Other securities 2,418 24 8 2,434 Total securities - held to maturity $120,991 $1,230 $477 $121,744 The amortized cost and estimated fair value of the securities portfolio at December 31, 1996, by contractual maturity, are shown below. The summary is divided into available for sale and held to maturity securities. Available for Sale Held to Maturity Amortized Estimated Amortized Estimated December 31, 1996 (In thousands) Cost Fair Value Cost Fair Value Due in one year or less $ 50,553 $ 50,413 $ 20,572 $ 20,593 Due after one year through five years 46,473 46,036 61,212 61,163 Due after five years through ten years 6,098 6,103 28,009 28,156 Due after ten years 6,716 6,739 1,816 1,816 $109,840 $109,291 $111,609 $111,728 Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Proceeds from sales and maturities of investments in debt securities during 1996, 1995 and 1994 were $171,347,000, $136,752,000, and $107,053,000, respectively. Gross gains of $10,000, $2,000, and $3,000 and gross losses of $0, $0, and $77,000 for 1996, 1995 and 1994, respectively, were realized on those sales and maturities. The amortized cost and estimated fair value of investment securities which were pledged as collateral for public deposits, treasury deposits, trust funds, customer repurchase agreements, and other purposes as required by law at December 31, 1996 and 1995 are shown below. The securities are divided into available for sale and held to maturity. 1996 1995 Available Held to Available Held to December 31, (In thousands) for Sale Maturity for Sale Maturity Amortized cost $61,264 $56,715 $51,077 $67,903 Estimated fair value 60,885 56,847 50,217 68,496 4. Loans Major classifications of loans are summarized as follows: December 31, (In thousands) 1996 1995 Commercial, financial and agricultural $120,256 $114,412 Real estate - construction 27,098 26,380 Real estate - mortgage 305,229 292,913 Consumer loans 85,720 99,571 Lease financing 29,144 21,666 Total loans 567,447 554,942 Less unearned income (9,198) (11,762) Total loans, net of unearned income $558,249 $543,180 Loans to directors, executive officers, principal shareholders, including loans to affiliated companies of which directors, executive officers and principal shareholders are principal owners, and loans to members of the immediate family of such persons, were approximately $13,277,000 and $12,602,000 at December 31, 1996 and 1995, respectively. An analysis of the activity with respect to these loans follows: (In thousands) Balance, December 31, 1995 $12,602 Additions, including loans now meeting disclosure requirements 8,413 Amounts collected, including loans no longer meeting disclosure requirements 7,738 Balance, December 31, 1996 $13,277 5. Allowance for Loan Losses On January 1, 1995, the Company implemented SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" which amends SFAS No. 114. The two Statements address the following: 1. The accounting by creditors for impairment of a loan. 2. The accounting by creditors for loans that are restructured in a troubled debt restructuring involving a modification of terms of a receivable. 3. The elimination of the categories of loans classified as in-substance foreclosures. SFAS No. 114 requires the measurement of impaired loans based on the present value of expected future cash flows using the loan's effective interest rate or, as a practical expedient, it may be measured on the fair market value of the loan, or the fair value of the collateral, if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. If the measure of the impaired loan is less than the recorded investment, an impairment will be recognized by creating a valuation allowance with a corresponding charge to the provision for loan loss. The adoption of SFAS No. 114 did not result in additional provisions for loan losses or changes in previously reported net earnings due to the fact that the Company's existing methods of measuring laon impairment are consistent with the methods prescribed in the Statement. SFAS No. 114 does not apply to large groups of smaller balance homogeneous loans that are collectively evaluated for impairment. The Company has identified these loans as credit card loans, home mortgages, and all other loans less than $500,000. The factors considered by management in determining if a loan is impaired include, but are not limited to, the following: length of delinquency, past history with the borrower, financial condition of the borrower, ability of the borrower to repay the debt based upon cash flow information, intentions of the borrower, and value of the collateral. Impairment is not necessarily determined by a minimum delay in payment. A minimum delay in payment occurs when the exact terms of the loan agreement have not been met by the borrower; however, the Company believes that contractual interest and principal payments will still be received. These loans are considered non-accrual loans because the timing of interest payments is unknown; however, it is still likely that interest will be received. Payments received while a loan is on non-accrual status are applied against principal only. All of the loans of the Company to which SFAS No. 114 applies are classified as commercial loans. Due to the size of the Company and the few loans that meet the criteria for application of SFAS No. 114, no further risk classification is necessary. On December 31, 1996 and 1995, the recorded investment in loans for which impairment has been recognized in accordance with the SFAS No. 114 totaled $2,847,000 and $2,000,000, respectively, and the total allowance related to such loans was $922,000 and $785,000. Of the $2,847,000 recorded investment at December 31, 1996, $1.192,000 was measured using the present value of future cash flows method and $1,655,000 was measured using the fair value of collateral method. Of the $2,000,000 recorded investment at December 31, 1995, $1,100,000 was measured using the present value of future cash flows method and $900,000 was measured using the fair value of collateral method. The recorded investment averaged $2,769,000 and $2,587,000 for the years ended December 31, 1996 and 1995, respectively. The amount of interest on these loans during 1996 and 1995 was $151,000 and $113,000, respectively. If the Company had used a cash-based method of accounting for the interest on these loans, the interest earned would have been $169,000 and $114,000 at December 31, 1996 and 1995, respectively. The Company's charge-off policy for impaired loans does not differ from the charge-off policy for loans outside the definition of SFAS No. 114. Loans that are delinquent in excess of 120 days are charged-off unless there is a valid reason for the delinquency and the borrower continues to maintain a satisfactory financial standing and/or the collateral securing the debt is of such value that any loss appears to be unlikely. An analysis of the allowance for loan losses follows:
Year Ended December 31, (In thousands) 1996 1995 1994 Regular SFAS 114 Total Regular SFAS 114 Total Regular Allowance Allowance Allowance Allowance Allowance Allowance Allowance Balance, beginning of year $7,687 $ 785 $8,472 $ 8,889 None $ 8,889 $ 8,547 Provisions for loan losses 3,044 1,118 4,162 3,727 3,727 2,125 Recoveries 516 516 740 740 841 Loans charged off (3,428) (981) (4,409) (3,666) $(1,218) (4,884) (2,624) Initial transfer to SFAS 114 allowance (2,003) (2,003) Initial transfer from regular allowance 2,003 2,003 Balance, end of year $7,819 $ 922 $8,741 $7,687 $ 785 $8,472 $ 8,889
The following is an estimate of the breakdown of the allowance for loan losses by type for the date indicated: Year Ended December 31, (In thousands) 1996 1995 Commercial, financial and agricultural $3,806 $4,138 Real estate 2,974 1,928 Installment loans to individuals 1,304 2,176 Direct lease financing 657 230 Total $8,741 $8,472 6. Nonperforming Assets (In thousands) 1996 1995 1994 Non-accrual loans $2,938 $2,897 $ 3,913 Loans past due 90 days or more 1,822 1,713 1,056 Restructured loans 1,814 1,571 3,538 Total nonperforming loan balances at December 31, 6,574 6,181 8,507 Other real estate owned 776 380 Total nonperforming assets at December 31, $6,574 $6,957 $ 8,887 Nonperforming loans as a percentage of loans - net of unearned interest 1.2% 1.1% 1.6% Nonperforming assets as a percentage of loans and other real estate owned 1.2% 1.3% 1.7% Interest income that would have been recognized under original terms for the year on nonperforming loans $ 445 $ 731 $ 576 Amount of interest income recognized for the year on nonperforming loans $ 189 $ 133 $ 117 7. Bank Premises and Equipment Bank premises and equipment consist of the following: December 31, (In thousands) 1996 1995 Land, building and leasehold improvement $23,082 $22,566 Furniture and equipment 17,564 17,919 Total bank premises and equipment 40,646 40,485 Less accumulated depreciation and amortization 21,326 20,569 Net bank premises and equipment $19,320 $19,916 Depreciation and amortization of bank premises and equipment was $1,941,000, $2,082,000, and $1,973,000 in 1996, 1995 and 1994, respectively. 8. Interest Bearing Deposits Time deposits of $100,000 or more at December 31, 1996 and 1995 were $53,488,000 and $58,641,000, respectively. 9. Other Borrowed Funds Other borrowed funds are comprised primarily of securities sold under agreement to repurchase with balances of $16,594,000 and $34,638,000 at December 31, 1996 and 1995, respectively. The weighted average interest rates on securities sold under agreement to repurchase for 1996 and 1995 were 5.11% and 5.48%, respectively. 10. Income Taxes The components of income tax expense are as follows: December 31, (In thousands) 1996 1995 1994 Currently payable $4,666 $3,640 $4,282 Deferred income taxes 512 732 (18) Total $5,178 $4,372 $4,264 An analysis of the difference between the effective income tax rates and the statutory federal income tax rate follows: December 31, (In thousands) 1996 1995 1994 Federal statutory rate 35.0% 35.0% 35.0% Changes from statutory rates resulting from: Tax exempt interest (6.8) (7.4) (7.0) Nondeductible interest to carry municipal obligations .8 .9 .7 Amortization of intangibles 1.0 1.2 1.3 Other, net (1.0) (.1) (.6) Effective tax rate 29.0% 29.6% 29.4% The tax effects of the significant temporary differences which comprise deferred tax assets and liabilities at December 31, 1996 and 1995 follows: December 31, (In thousands) 1996 1995 Assets Loan loss reserve $3,059 $3,000 Deferred directors' fees 168 145 Postretirement benefit obligation 366 257 Investment securities 187 425 Self-funded insurance 196 Other 95 260 Total deferred tax assets 4,071 4,087 Liabilities Depreciation 1,691 1,643 Deferred loan fees 632 228 Lease financing operations 1,045 752 Other 90 101 Total deferred tax liabilities 3,458 2,724 Net deferred tax assets $ 613 $1,363 11. Retirement Plans The Company maintains a defined contribution-money purchase pension plan which covers substantially all employees. The Company's contributions under the plan are based upon a percentage of covered employees' salaries. The Company has established a stock bonus/employee stock ownership plan for the benefit of substantially all employees of the Company. The Company's contributions under the plan are based upon a percentage of covered employees' salaries, and are paid at the discretion of the Board of Directors of the Company. The Company contributes cash to the plan and Company shares are purchased with the cash in the open market. Cash contributed to the plan was $102,000, $0, and $100,000, respectively for the years ended December 31, 1996, 1995 1995 and 1994. No stock was contributed to the plan for the years ended December 31, 1996, 1995 and 1994, respectively. The Company has also established a profit-sharing (401K) plan which covers substantially all employees. The Company will match all eligible employee contributions up to 4% of the participant's compensation. The Company may, at the discretion of the Board, contribute an additional amount based upon a percentage of covered employees' salaries. The total retirement plans' expense for 1996, 1995 and 1994 was $897,000, $857,000, and $820,000, respectively. 12. Postretirement Benefits The Company provides lifetime medical and dental benefits for certain eligible retired employees. Only employees meeting the eligibility requirements as of December 31, 1989 will be eligible for such benefits upon retirement. The entire cost of these benefits is paid for by the Company as incurred and totaled $127,000, $131,000, and $86,000, respectively, for the years ended December 31, 1996, 1995 and 1994. The plan is unfunded. The following table sets forth the plan's status reconciled with the amount shown in the Company's balance sheets at December 31, 1996 and 1995. (In thousands) 1996 1995 Accumulated postretirement benefit obligation Retirees and dependents $2,577 $3,367 Fully eligible active plan participants 675 671 Other active plan participants 698 684 Total accumulated postretirement benefit obligation 3,950 4,722 Unrecognized net loss (866) (1,768) Unamortized transition obligation (1,623) (1,725) Unrecognized prior service cost (509) (551) Accrued postretirement benefit cost $ 952 $ 678 The components of the net periodic postretirement benefit cost at December 31, 1996 and 1995 are as follows: (In thousands) 1996 1995 Service cost $ 24 $ 19 Interest on accumulated benefit obligation 278 243 Amortization of transition obligation and other 192 144 Total $494 $ 406 Major assumptions: Discount rate 7.5% 7.0% For measurement purposes, a 10.6% annual rate of increase in the per capita cost of covered health care benefits for those below the age of 65 and 8.8% for those over 65 was assumed. The rate was assumed to decrease gradually to 6% by 2012 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. If the health care cost trend rate were to increase 1%, the service and interest cost would be $341,000 and the accumulated benefit obligation would be $4,458,000. 13. Leases The Company leases certain of its branch sites and certain banking equipment under operating leases. All of the branch site leases have renewal options of varying lengths and terms. The aggregate minimum rental commitments under these leases are not material. 14. Financial Instruments With Off-Balance Sheet Risk The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit and standby letters of credit. These financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Total commitments to extend credit at December 31, 1996, were $76,087,000. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income producing commercial properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in using letters of credit is essentially the same as that received when extending credit to customers. The Company had approximately $5,019,000 in irrevocable letters of credit outstanding at December 31, 1996. 15. Concentration of Credit Risk The Company's bank subsidiaries actively engage in lending, primarily in home counties and adjacent areas. Collateral is received to support these loans when deemed necessary. The more significant categories of collateral include cash on deposit with the Company's banks, marketable securities, income producing property, home mortgages, and consumer durables. Loans outstanding, commitments to make loans, and letters of credit range across a large number of industries and individuals. The obligations are significantly diverse and reflect no material concentration in one or more areas. 16. Contingencies The Company's bank subsidiaries are defendants in legal actions arising from normal business activities. Management believes these actions are without merit, that in certain instances its actions or omissions were pursuant to the advice of counsel, or that the ultimate liability, if any, resulting from them will not materially affect the Company's consolidated financial position or results of operations or cash flows, although resolution in any year or quarter could be material for that period. 17. Dividend Limitations Payment of dividends by the Company's subsidiary banks is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. At December 31, 1996, combined retained earnings of the subsidiary banks were approximately $39,378,000 of which $7,742,000 is available for the payment of dividends in 1997 without obtaining prior approval from bank regulatory agencies. 18. Effect of Implementing SFAS No. 125 In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". Under this standard, accounting for transfers and servicing of financial assets and extinguishments of liabilities is based on control. After a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. This statement applies prospectively in fiscal years beginning after December 31, 1996. The Company does not expect the implementation of this statement to have a material affect on the financial statements. 19. Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Cash Equivalents The carrying amount is a reasonable estimate of fair value. Investment Securities For marketable equity securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. For other securities held as investments, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loan Receivables For variable rate loans that reprice frequently with no significant change in credit risk, fair values approximate carrying amounts. For certain homogeneous categories of loans, such as credit card receivables, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using a discount rate that has been adjusted for credit risk and the remaining maturities. Deposit Liabilities The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The carrying amount for variable rate and fixed maturity money market accounts and certificates of deposit approximates fair value at the reporting date. The fair value of fixed rate and fixed maturity certificates of deposit is estimated using a discounted cash flow method that applies interest rates currently offered for certificates of deposit with similar remaining maturities. Commitments to Extend Credit and Standby Letters of Credit Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses which provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company's commitments to lend, and standby letters of credit are competitive with others in the various markets in which the Company operates. There are no unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero. Other Borrowed Funds The fair value of other borrowed funds is estimated using rates currently available for debt with similar terms and remaining maturities. The estimated fair values of the Company's financial instruments are as follows: 1996 1995 Carrying Fair Carrying Fair December 31, (In thousands) Amount Value Amount Value Assets Cash and cash equivalents $122,746 $122,746 $110,184 $110,184 Investments securities: Available for sale 109,291 109,291 105,933 105,933 Held to maturity 111,609 111,728 120,991 121,744 Loans, net 549,508 543,252 534,708 528,749 Liabilities Deposits 786,310 787,793 754,861 757,771 Other borrowed funds 20,165 20,419 38,524 37,362 20. Quarterly Financial Data Quarters Ended 1996 Unaudited (In thousands, except per share data) March 31, June 30, Sept. 30, Dec. 31, Interest income $16,966 $17,032 $16,725 $16,762 Interest expense 7,323 7,111 7,134 7,135 Net interest income 9,643 9,921 9,591 9,627 Provision for loan losses 1,270 1,819 468 605 Net interest income after provision for loan losses 8,373 8,102 9,123 9,022 Other income 2,897 5,848 2,954 3,290 Other expense 7,847 7,766 7,643 8,519 Income before income taxes 3,423 6,184 4,434 3,793 Income tax 968 1,995 1,297 918 Net income $2,455 $4,189 $3,137 $2,875 Net income per common share $0.64 $1.08 $0.82 $0.76 Weighted average shares outstanding 3,866 3,866 3,836 3,798 Quarters Ended 1995 Unaudited (In thousands, except per share data) March 31, June 30, Sept. 30, Dec. 31, Interest income $16,148 $16,596 $16,972 $17,545 Interest expense 6,584 6,988 7,162 7,381 Net interest income 9,564 9,608 9,810 10,164 Provision for loan losses 713 1,048 945 1,021 Net interest income after provision for loan losses 8,851 8,560 8,865 9,143 Other income 2,562 3,110 2,973 3,099 Other expense 8,057 8,564 7,692 8,089 Income before income taxes 3,356 3,106 4,146 4,153 Income tax 1,011 920 1,272 1,169 Net income $ 2,345 $ 2,186 $ 2,874 $ 2,984 Net income per common share $ 0.61 $ 0.57 $ 0.74 $ 0.77 Weighted average shares outstanding 3,866 3,866 3,866 3,866 21. Parent Company Financial Statements Condensed Balance Sheets December 31, (In thousands) 1996 1995 Assets Cash on deposit with subsidiaries $ 28,197 $ 24,598 Investment in subsidiaries 82,474 81,349 Other assets 1,940 1,581 Total assets $112,611 $107,528 Liabilities Dividends payable $ 1,558 $ 1,392 Other liabilities 1,457 1,207 Total liabilities 3,015 2,599 Shareholders' Equity Common stock 949 967 Capital surplus 8,931 9,094 Retained earnings 100,078 95,694 Net unrealized loss on securities available for sale, net of tax (362) (826) Total shareholders' equity 109,596 104,929 Total liabilities and shareholders' equity $112,611 $107,528 Condensed Statements of Income December 31, (In thousands) 1996 1995 1994 Income Dividends from subsidiaries $12,847 $ 7,756 $ 24,090 Interest income 98 101 72 Other income 689 724 740 Total income 13,634 8,581 24,902 Expense Other expense 2,149 1,556 1,526 Total expense 2,149 1,556 1,526 Income before income tax benefit and equity in income of subsidiaries less amounts distributed to parent 11,485 7,025 23,376 Income tax benefit 509 288 154 Income before equity in income of subsidiaries less amounts distributed to parent 11,994 7,313 23,530 Equity in income of subsidiaries less amounts distributed to parent 662 3,076 (13,280) Net income $12,656 $10,389 $ 10,250 Condensed Statements of Cash Flows December 31, (In thousands) 1996 1995 1994 Cash flows from operating activities Net income $12,656 $10,389 $ 10,250 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of subsidiaries less amounts distributed to parent (662) (3,076) 13,280 Change in other assets and liabilities, net (107) 420 548 Net cash provided by operating activities 11,887 7,733 24,078 Cash flows from financing activities Cash dividends (5,557) (5,104) (4,640) Purchase of common stock (2,731) Net cash used in financing activities (8,288) (5,104) (4,640) Net change in cash and cash equivalents 3,599 2,629 19,438 Cash and cash equivalents at beginning of year 24,598 21,969 2,531 Cash and cash equivalents at end of year $28,197 $24,598 $ 21,969 Supplemental disclosures Cash paid during the year for income taxes $4,210 $ 3,730 $ 4,255 Cash dividend declared and unpaid 1,558 1,392 1,276 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On February 28, 1997, Farmers Capital Bank Corporation (the "Registrant") engaged the accounting firm of KPMG Peat Marwick LLP as principal accountants, subject to the approval of the Registrant's shareholders. KPMG Peat Marwick LLP replaces Coopers & Lybrand L.L.P. (the "Former Accountant") as of the date reported above. The change in the Registrant's independent public accountants was the result of a formal proposal process involving several accounting firms. The decision to change accountants was approved by the Registrant's Board of Directors. During the two most recent fiscal years and the subsequent interim prior to February 28, 1997, there have been no disagreements with the Former Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure or any reportable events. The Former Accountants report on the consolidated financial statements for the past two years contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. None of the following events has occurred within the Registrant's two most recent fiscal years or the subsequent interim period preceding the change in accountants: (A) the Former Accountant has not advised the Registrant that the internal controls necessary for the Registrant to develop reliable financial statements do not exist; (B) the Former Accountant has not advised the Registrant that information had come to the accountant's attention that led it to no longer be able to rely on management's representations, or that made it unwilling to be associated with the financial statements prepared by management; (C) (1) the Former Accountant has not advised the Registrant of the need to expand significantly the scope of its audit, or that information has come to the accountant's attention that if further investigated could (i) materially impact the fairness or reliability of either a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal periods subsequent to the date of the most recent financial statements covered by an audit report (including information that could prevent it from rendering an unqualified report on those financial statements), or (ii) cause it to be unwilling to rely on management's representations or be associated with the Registrant's financial statements, and (2) due to the accountant's dismissal, or for any other reason, the accountant did not so expand the scope of its audit or conduct such further investigations; or (D) (1) the Former Accountant has not advised the Registrant that information has come to the accountant's attention that it concluded materially impacts the fairness or reliability or either (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal periods subsequent to the date of the most recent financial statements issued or to be issued covered by an audit report (including information that, unless resolved to the accountant's satisfaction, would prevent it from rendering an unqualified audit report on those financial statements), and (2) due to the accountant's dismissal, or for any other reason, the issue has not been resolved to the accountant's satisfaction prior to its dismissal. During the two most recent fiscal years, and the subsequent interim period prior to engaging KPMG Peat Marwick LLP, neither the Registrant, nor anyone on its behalf, consulted KPMG Peat Marwick LLP regarding (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Registrant's financial statements, where either a written report was provided to the Registrant or oral advice was provided, that KPMG Peat Marwick LLP concluded was an important factor considered by the Registrant in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(l)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in paragraph 304(a)(l)(v) of Regulation S-K). The Registrant has requested that the Former Accountant furnish it with a letter addressed to the SEC stating whether it agrees with the above statements. A copy of the Former Accountant's letter to the SEC dated March 5, 1997 is attached as an exhibit to this report. PART III Item 10 - Directors and Executive Officers of the Registrant Positions and Years of Service Offices With With the Executive Officer Age Registrant Registrant Charles S. Boyd 55 Director1 , President 33* and CEO James H. Childers 54 Executive Vice President, 27* Secretary, General Counsel, Director2 Additional information required by Item 10 is hereby incorporated by reference from the Registrant's definitive proxy statement in connection with its annual meeting of shareholders scheduled for May 13, 1997 which will be filed with the Commission in March 1997, pursuant to Regulation 14A. * Includes years of service with the Registrant and Farmers Bank & Capital Trust Co. 1 Also a director of Farmers Bank, Horse Cave Bank, Farmers Georgetown Bank, United Bank, Lawrenceburg Bank, First Citizens Bank, FCB Services and Money One (prior to the dissolution of Money One in 1996). 2 A director of Farmers Georgetown Bank. Item 11 - Executive Compensation Item 12 - Security Ownership of Certain Beneficial Owners and Management Item 13 - Certain Relationships and Related Transactions The information required by Items 11 through 13 is hereby incorporated by reference from the Registrant's definitive proxy statement in connection with its annual meeting of shareholders scheduled for May 13, 1997 which will be filed with the Commission in March 1997, pursuant to Regulation 14A. PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) List of documents and exhibits 1 & 2 Financial Statements and Schedules Reference (page) Report of Independent Accountants 28 Consolidated Balance Sheets at December 31, 1996 and 1995 29 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 30 Consolidated Statements of Changes in Shareholder Equity for the years ended December 31, 1996, 1995 and 1994 31 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 32 Notes to the Consolidated Financial Statements 33-48 All schedules are omitted for the reason they are not required, or are not applicable, or the required information is disclosed elsewhere in the financial statements and related notes thereto. 3. Exhibits: 16. Letter re change in certifying accountant 21. Subsidiaries of the Registrant 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K have been filed by the Registrant during the three month period ended December 31, 1996. (c) Exhibits See list of exhibits set forth on page 53. (d) Separate Financial Statements and Schedules None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. FARMERS CAPITAL BANK CORPORATION By: /s/ Charles S. Boyd Charles Scott Boyd President and Chief Executive Officer Date: 3/24/97 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/Charles S. Boyd President, Chief Executive Officer 3/24/97 Charles Scott Boyd and Director (principal executive officer of the Registrant) /s/John P. Stewart Chairman 3/26/97 John Poage Stewart /s/J. Barry Banker Director 3/24/97 J. Barry Banker /s/James E. Bondurant Director 3/21/97 James E. Bondurant /s/G. Anthony Busseni Director 3/24/97 G. Anthony Busseni /s/J.H. Childers Director 3/24/97 James H. Childers /s/J.D. Sutterlin Director 3/25/97 John Douglas Sutterlin /s/W. Benjamin Crain Director 3/24/97 W. Benjamin Crain /s/Lloyd C. Hillard,Jr Director 3/21/97 Lloyd C. Hillard, Jr. /s/Ellwood Bruce Dungan Director 3/24/97 Ellwood Bruce Dungan /s/Harold G. Mays Director 3/27/97 Harold G. Mays /s/Frank W. Sower, Jr Director 3/26/97 Frank W. Sower, Jr. /s/C. Douglas Carpenter Vice President and CFO 3/20/97 Cecil Douglas Carpenter (principal financial and accounting officer) FARMERS CAPITAL BANK CORPORATION INDEX OF EXHIBITS 16. Letter re change in certifying accountant 21. Subsidiaries of the Registrant 27. Financial Data Schedule Exhibit 16 Letter re Change in Certifying Accountant Coopers Suite 1800 Telephone (502)589-6100 & Lybrand, L.L.P. 500 West Main Street Facsimile (502)585-7775 Louisville, KY 40202-4264 March 5, 1997 Securities and Exchange Commission 450 5th Street, N.W. Washington, D.C. 20549 Gentlemen: We have read the statements made by Farmers Capital Bank Corporation (copy attached), which we understand will be filed with the Commission, pursuant to Item 4 of Form 8-K, as part of the Company's Form 8-K report for the month of March 1997. We agree with the statements concerning Coopers & Lybrand L.L.P. in such Form 8-K. Very truly yours, /s/Coopers & Lybrand L.L.P. JFF:jkh Attachment EXHIBIT 21 Subsidiaries of the Registrant The following table provides a listing of the direct and indirect operating subsidiaries of the Registrant, the percent of voting stock held by the Registrant as of December 31, 1996 and the jurisdiction or organization in which each subsidiary was incorporated or organized. Percentage of Voting Jurisdiction Stock held by Subsidiaries of the Registrant of Organization Registrant Farmers Bank & Capital Trust Co. Kentucky 100% United Bank & Trust Company Kentucky 100% First Citizens Bank, Hardin County, Inc. Kentucky 100% Lawrenceburg National Bank Kentucky 100% Farmers Bank and Trust Company Kentucky 100% Horse Cave State Bank Kentucky 100% FCB Services, Incorporated Kentucky 100% Farmers Capital Insurance Company 1 Kentucky 100% Farmers Bank Realty Company 2 Kentucky Frankfort ATM Ltd. 3 Kentucky Money One Credit of Kentucky. Inc. 2, 5 Kentucky Money One Credit Company 4, 5 Kentucky Leasing One Corporation 2 Kentucky 1 Dormant company, no activity to date. 2 A wholly-owned subsidiary of Farmers Bank & Capital Trust Company. 3 A fifty (50%) percent owned joint venture of Farmers Bank & Capital Trust Company. 4 A partnership of which ninety-eight (98%) is owned by Farmers Bank & Capital Trust Company, one (1%) percent is owned by Money One Credit of Kentucky, Inc. and one (1%) percent is owned by Farmers Bank Realty Company. 5 On May 31, 1996 all of the loans and fixed assets were sold to unrelated third parties. The remaining assets were distributed to their shareholders at the close of business on December 31, 1996. EX-27 2
9 This schedule contains summary financial information extracted from the December 31, 1996 financial statements and is qualified in its entirety by reference to such financial statements. 1000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 52073 758 69915 0 109291 111609 111728 558249 8741 925319 786310 16594 12819 3571 0 0 949 108647 925319 52778 11993 2714 67485 27170 28703 38782 4162 10 31775 17834 17834 0 0 12656 3.29 3.29 4.96 2938 1822 1814 0 8472 4409 516 8741 8741 0 0
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