-----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, TVvl8OTXefOR23J3p++H9MuOWVs5vh06V2sxeeUwf1rSFAZRUVpzWIULrtbO+3Bn PhcfS7qkRc26UM/iz2+Itw== 0000713095-99-000006.txt : 19990512 0000713095-99-000006.hdr.sgml : 19990512 ACCESSION NUMBER: 0000713095-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS CAPITAL BANK CORP CENTRAL INDEX KEY: 0000713095 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 611017851 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14412 FILM NUMBER: 99616695 BUSINESS ADDRESS: STREET 1: PO BOX 309 STREET 2: 202 W MAIN ST CITY: FRANKFORT STATE: KY ZIP: 40602 BUSINESS PHONE: 5022271668 MAIL ADDRESS: STREET 1: P O BOX 309 STREET 2: 202 WEST MAIN STREET CITY: FRANKFORT STATE: KY ZIP: 40602 10-Q 1 MARCH 31, 1999 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission File Number 0-14412 Farmers Capital Bank Corporation (Exact name of registrant as specified in its charter) Kentucky 61-1017851 - --------------------------------------------- --------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) P.O. Box 309, 202 West Main Street Frankfort, Kentucky 40602 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502) 227-1600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, par value $0.125 per share 7,488,577 shares outstanding at May 7, 1999
TABLE OF CONTENTS Part I - Financial Information Page No. - ------------------------------ -------- Item 1 - Financial Statements Unaudited Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 3 Unaudited Consolidated Statements of Income - For the Three Months Ended March 31, 1999 and March 31, 1998 4 Unaudited Consolidated Statements of Comprehensive Income - For the Three Months Ended March 31, 1999 and March 31, 1998 5 Unaudited Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 1999 and March 31, 1998 6 Unaudited Consolidated Statements of Changes in Shareholders' Equity - For the Three Months Ended March 31, 1999 and March 31, 1998 7 Notes to Consolidated Financial Statements 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14 Part II - Other Information - --------------------------- Item 6 - Exhibits and Reports on Form 8-K 14
PART I - FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- UNAUDITED CONSOLIDATED BALANCE SHEETS March 31, December 31, (In thousands, except share data) 1999 1998 --------------------------------- ---- ---- ASSETS Cash and cash equivalents: Cash and due from banks $76,273 $38,385 Interest bearing deposits in other banks 1,867 1,914 Federal funds sold and securities purchased under agreements to resell 27,995 51,535 ------- ------ Total cash and cash equivalents 106,135 91,834 Investment securities: Available for sale 185,703 191,487 Held to maturity 69,526 71,369 ------- ------- Total investment securities 255,229 262,856 Loans, net of unearned income 600,870 604,683 Allowance for loan losses (9,030) (9,048) ------- ------- Loans, net 591,840 595,635 Premises and equipment, net 25,205 24,861 Other assets 17,267 17,152 ------- ------- Total assets $995,676 $992,338 ======= ======= LIABILITIES Deposits: Noninterest bearing $159,079 $123,741 Interest bearing 665,746 706,260 ------- ------- Total deposits 824,825 830,001 Securities sold under agreements to repurchase 34,006 26,324 Other borrowed funds 3,351 3,926 Dividends payable 2,103 2,113 Other liabilities 6,765 6,135 ------- ------- Total liabilities 871,050 868,499 Commitments and contingencies SHAREHOLDERS' EQUITY Common stock, par value $0.125 per share; 9,608,000 shares authorized; 7,506,783 and 7,520,465 shares issued and outstanding at March 31, 1999 and December 31, 1998, respectively 938 940 Capital surplus 10,742 10,520 Retained earnings 112,946 112,010 Accumulated other comprehensive income 369 ------- ------- Total shareholders' equity 124,626 123,839 ------- ------- Total liabilities and shareholders' equity $995,676 $992,338 ======= ======= See accompanying notes to consolidated financial statements. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Three months ended March 31, 1999 1998 - ---------------------------- ---- ---- INTEREST INCOME Interest and fees on loans $13,177 $13,381 Interest on investment securities: Taxable 2,337 1,991 Nontaxable 903 766 Interest on deposits in other banks 28 53 Interest on federal funds sold and securities purchased under agreements to resell 587 837 ------ ------ Total interest income 17,032 17,028 INTEREST EXPENSE Interest on deposits 6,334 6,675 Interest on other borrowed funds 508 497 ------ ------ Total interest expense 6,842 7,172 ------ ------ Net interest income 10,190 9,856 Provision for loan losses 194 232 ------ ------ Net interest income after provision for loan losses 9,996 9,624 NONINTEREST INCOME Service charges and fees on deposits 1,221 1,277 Other service charges, commissions, and fees 1,053 1,047 Data processing income 323 364 Trust income 320 298 Investment securities gains 3 100 (Loss) gain on sale of loans (5) 5 Other 99 145 ------ ------ Total noninterest income 3,014 3,236 NONINTEREST EXPENSE Salaries and employee benefits 4,431 4,195 Occupancy expenses, net 559 499 Equipment expenses 736 669 Data processing expense 182 296 Bank franchise tax 252 264 Other 1,973 1,924 ------ ------ Total noninterest expense 8,133 7,847 ------ ------ Income before income taxes 4,877 5,013 Income tax expense 1,374 1,431 ------ ------ Net income $3,503 $3,582 ====== ====== NET INCOME PER COMMON SHARE Basic and diluted $.47 $.47 WEIGHTED AVERAGE SHARES OUTSTANDING Basic and diluted 7,514 7,559 See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three months ended March 31, (In thousands) 1999 1998 - ------------------------------------------- ---- ---- NET INCOME $3,503 $3,582 Other comprehensive income: Unrealized holding loss on available for sale securities arising during the period, net of tax of $181 and $45 in 1999 and 1998, respectively (351) (87) Reclassification adjustment for prior period unrealized gain recognized during current period, net of tax of $9 and $36 in 1999 and 1998, respectively (18) (70) ----- ----- Other comprehensive loss (369) (157) ---- ----- COMPREHENSIVE INCOME $3,134 $3,425 ===== ===== See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended March 31, (In thousands) 1999 1998 - ------------------------------------------- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,503 $3,582 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 720 633 Net amortization of securities premiums and discounts: Available for sale (49) (25) Held to maturity 26 104 Provision for loan losses 194 232 Noncash compensation expense 231 Mortgage loans originated for sale (7,726) (5,878) Proceeds from sale of mortgage loans 5,806 5,658 Deferred income tax expense (benefit) 55 (1) Loss (gain) on sale of mortgage loans 5 (5) Gain on sale of available for sale investment securities (3) (100) Decrease in accrued interest receivable 122 419 Increase in other assets (367) (874) (Decrease) increase in accrued interest payable (30) 163 Increase in other liabilities 795 754 ----- ----- Net cash provided by operating activities 3,282 4,662 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity or call of investment securities: Available for sale 78,426 45,886 Held to maturity 1,817 7,084 Proceeds from sale of available for sale investment securities 5,028 25,394 Purchase of investment securities: Available for sale (78,177) (69,615) Held to maturity (6,809) Loans originated for investment, net of principal collected 5,516 10,062 Purchase of premises and equipment (934) (2,888) ------ ------ Net cash provided by investing activities 11,676 9,114 CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (5,176) (67,125) Dividends paid (2,113) (1,815) Purchase of common stock (482) (215) Stock options exercised 7 Net increase (decrease) in other borrowed funds 7,107 (10,303) ----- ------ Net cash used in financing activities (657) (79,458) ------ ------ Net increase (decrease) in cash and cash equivalents 14,301 (65,682) Cash and cash equivalents at beginning of year 91,834 186,740 ------- ------- Cash and cash equivalents at end of period $106,135 $121,058 ======= ======= SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $6,872 $7,009 Income taxes 350 Cash dividend declared and unpaid 2,103 1,814 See accompanying notes to consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Accumulated Total (In thousands, except per share data) Common Stock Capital Retained Other Comprehensive Shareholders Three months ended March 31, 1999 and 1998 Shares Amount Surplus Earnings Income (Loss) Equity - ------------------------------------------ ------ ------ ------- -------- ------------- ------ Balance at December 31, 1998 7,520 $940 $10,520 $112,010 $369 $123,839 Net Income 3,503 3,503 Other comprehensive loss (369) (369) Cash dividends declared, $.28 per share (2,103) (2,103) Purchase of common stock (14) (2) (16) (464) (482) Stock options exercised, including related tax benefits 1 7 7 Effect of noncash compensation attributed to stock option grants 231 231 ----- --- ------ ------- --- ------- Balance at March 31, 1999 7,507 $958 $10,742 $112,946 0 $124,626 ===== === ====== ======= === ======= Balance at December 31, 1997 7,562 $945 $8,894 $107,105 $100 $117,044 Net Income 3,582 3,582 Other comprehensive loss (157) (157) Cash dividends declared, $.24 per share (1,814) (1,814) Purchase of common stock (7) (1) (8) (206) (215) ----- --- ------ ------- --- ------- Balance at March 31, 1998 7,555 $944 $8,886 $108,667 $(57) $118,440 ===== === ====== ======= === ======= See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the "Company"), a bank holding company, and its subsidiaries, including its principal subsidiary, Farmers Bank & Capital Trust Company. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company's banking operations are considered by management to be aggregated into one reporting operating segment. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy. Changes in the overall interest rate environment can significantly affect the Company's net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements. The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and the footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 2. RECLASSIFICATIONS Certain reclassifications have been made to the consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications do not affect net income or shareholders' equity as previously reported. 3. STOCK SPLIT On January 26, 1998, the Company's Board of Directors approved a two-for-one stock split of its common stock. The stock split was effective July 1, 1998 for holders of record on June 1, 1998. The stock split increased the Company's outstanding common shares from 3,777,620 to 7,555,240 shares on July 1, 1998. Accordingly, all references in the Consolidated Financial Statements, Footnotes, and Supplementary data to the number of shares, per share amounts, and market prices of the Company's common stock have been restated to give retroactive recognition to the stock split. Item 2. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations ------------- FORWARD-LOOKING STATEMENTS This report contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its subsidiaries operate); competition for the Company's customers from other providers of financial services; government legislation and regulation (which changes from time to time and over which the Company has no control); changes in interest rates; material unforeseen changes in the liquidity, results of operations, or financial condition of the Company's customers; and other risks detailed in the Company's filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company. RESULTS OF OPERATIONS First Quarter 1999 vs. First Quarter 1998 ----------------------------------------- The Company reported earnings of $3.5 million or $.47 per diluted share for the first quarter of 1999, compared to earnings of $3.6 million or $.47 per diluted share for the first quarter of 1998. Return on average assets was 1.43% for the first quarter of 1999, compared to 1.55% reported for the same period of 1998. Return on average equity was 11.55% for the first quarter of 1999, a decrease from 12.39% during the same period of 1998. Net Interest Income - ------------------- Net interest income totaled $10.2 million for the first quarter of 1999, an increase of $334 thousand or 3.4% compared to $9.9 million for the first quarter 1998. Interest income was $17.0 million for the first quarter of 1999, relatively unchanged from the same period a year earlier. Interest expense totaled $6.8 million for the current quarter, a decrease of $330 thousand or 4.6% compared to the previous year period. Interest and fees on loans decreased $204 thousand or 1.5% to $13.2 million despite a $21.6 million or 3.7% increase in average loans. The decrease in interest and fees on loans was primarily attributed to a 46 basis point decrease in the average rate earned on loans. Interest on taxable securities increased $346 thousand or 17.4% and interest on nontaxable securities increased $137 thousand or 17.9%. The increase in interest income on both taxable and nontaxable securities is primarily the result of increases in the average balances of each category. The average balance of taxable securities increased $32.8 million or 24.8% and average nontaxable securities increased $12.6 million or 17.4%. Interest on short term investments, including time deposits in other banks, federal funds sold, and securities purchased under agreements to resell decreased $275 thousand or 30.9%. The decrease is due to a combination of a $12.8 million decrease in the average balance of these investments and a 77 basis point decrease in the average rate earned. Interest expense on deposits decreased $341 thousand or 5.1% due primarily to a 38 basis point decrease in the average rates paid on deposits. Interest expense on time deposits decreased $195 thousand or 4.4%. Interest expense on interest bearing demand deposits decreased $102 thousand or 9.3% and interest expense on savings deposits decreased $44 thousand or 3.6%. Interest expense on short term borrowings increased $16 thousand or 3.7% due primarily to an increase in the average outstanding borrowings of $5.9 million. The net interest margin, on a tax equivalent basis, decreased to 4.80% during the first quarter of 1999 compared to 4.82% in the first quarter of 1998. The spread between rates earned and paid for the first quarter of 1999 increased 4 basis points to 4.03% compared to the same period a year earlier. Noninterest Income - ------------------ Noninterest income decreased $222 thousand or 6.9% to $3.0 million for the first quarter of 1999. Service charges and fees on deposits decreased $56 thousand or 4.4%. Other service charges, commissions, and fees remained relatively unchanged at $1.1 million. Data processing income decreased $41 thousand or 11.3%. Trust fees increased 7.4% to $320 thousand. Gains on the sale of available for sale investment securities totaled $3 thousand, a decrease of $97 thousand compared to the prior year. Other noninterest income decreased $56 thousand in 1999 compared to 1998. Noninterest Expense - ------------------- Total noninterest expenses increased $286 thousand or 3.6% from the first quarter of 1998 to $8.1 million. Salaries and employee benefits, the largest component of noninterest expense, increased $236 thousand or 5.6%. The increase in salaries and employee benefits is primarily attributed to $231 thousand in noncash compensation expense recorded in the current quarter attributed to the Company's stock option plan. No such expense was recorded in the first quarter of 1998. Occupancy expense, net of rental income, increased $60 thousand to $559 thousand. The increase is partially attributed to the Company's efforts to expand into new markets. Equipment expense increased $67 thousand or 10.0%. Data processing expense decreased $114 thousand to $182 thousand. The decrease in data processing expense is primarily attributed to a decrease in credit card interchange expenses, which is the result of a lower volume of credit card transactions. Bank franchise taxes decreased $12 thousand to $252 thousand. Other noninterest expenses increased $49 thousand to $2.0 million for the quarter ended March 31, 1999. Income Taxes - ------------ Income tax expense for the quarter ended March 31, 1999 was $1.4 million, unchanged from the first quarter of 1998. The first quarter 1999 effective tax rate was 28.2%, a decrease of 40 basis points from 28.6% for the first quarter of 1998. FINANCIAL CONDITION Total assets were $996 million on March 31, 1999, an increase of $3.3 million or less than 1% from December 31, 1998. Total assets and deposits are affected by the relationship between the Company's principal subsidiary, Farmers Bank & Capital Trust Co., and the Commonwealth of Kentucky. Farmers Bank provides various services to state agencies of the Commonwealth. As the depository for the Commonwealth, these agencies issue checks drawn on Farmers Bank, including paychecks and state income tax refunds. Farmers Bank also processes vouchers for the WIC (Women, Infants and Children) program for the Cabinet for Human Resources. The Bank's investment department provides service to both the Kentucky Retirement and Teacher's Retirement Systems. As the depository for the Commonwealth, large fluctuations in deposits are likely to occur on a daily basis. Total assets averaged $992 million for the first quarter of 1999, an increase of $37 million or 3.9% from year end 1998. Loans - ----- Loans, net of unearned income, decreased $3.8 million or less than 1% from December 31, 1998 to $601 million. Average loans, net of unearned income increased $11.6 million or 2.0%. On average, loans represented 67% of earning assets compared to 68% at year end 1998. As loan demand fluctuates, the available funds are redirected between either temporary investments or investment securities. Allowance for Loan Losses - ------------------------- The provision for loan losses decreased $38 thousand or 16.4% compared to the first quarter 1998. The Company recorded net charge-offs of $212 thousand in the first quarter of 1999, a slight decrease compared to net charge-offs of $215 thousand in the same period of 1998. The allowance for loan losses was 1.5% of net loans for the first quarter of 1999, unchanged from year end 1998. Management continues to emphasize collection efforts and evaluation of risks within the portfolio. Nonperforming Assets - -------------------- Nonperforming assets, consisting of nonaccrual loans, restructured loans, loans past due ninety days or more on which interest in still accruing, other real estate owned, and other foreclosed assets, totaled $4.4 million on March 31, 1999, a decrease of $239 thousand or 5.1% from year end 1998. Nonperforming assets to total equity decreased from 3.8% at year end 1998 to 3.6% at March 31, 1999. Nonperforming loans as a percentage of net loans decreased from .48% at year end to .46%. Other real estate owned, which had a balance of $1.7 million at year end 1998, decreased to $1.6 million as of March 31, 1999. Temporary Investments - --------------------- Time deposits with banks, federal funds sold and securities purchased under agreements to resell averaged $51.2 million, a decrease of $3.0 million or 5.6% from year end 1998. Investment Securities - --------------------- Investment securities were $255 million on March 31, 1999, a decrease of $7.6 million or 2.9% from year end 1998. Available for sale and held to maturity securities were $186 and $69 million, respectively. Investment securities averaged $250 million for the first quarter of 1999, an increase of $28.4 million or 12.8% from year end 1998. The unrealized gain on available for sale investment securities decreased $369 thousand, net of tax, during the quarter ending March 31, 1999. Deposits - -------- Total deposits decreased $5.2 million or less than 1%, from year end 1998 to $825 million. Noninterest bearing deposits increased $35.3 million or 28.6% while interest bearing deposits have decreased $40.5 million or 5.7%. The increase in noninterest bearing deposits is primarily due to the relationship between the Company's principal subsidiary and the Commonwealth of Kentucky as described in preceding sections of this report. Deposits averaged $821 million, an increase of $32.3 million or 4.1% from year end 1998. Borrowed Funds - -------------- Borrowed funds totaled $37.4 million, an increase of $7.1 million or 23.5% from year end 1998. This increase is due primarily to repurchase agreements entered into with the Commonwealth of Kentucky. Fluctuations occur due to the relationship with the Commonwealth as described under the caption "FINANCIAL CONDITION". Borrowed funds averaged $41.2 million for the first quarter of 1999, an increase of $1.9 million or 4.7%. LIQUIDITY The liquidity of the Parent Company is primarily affected by the receipt of dividends from its subsidiary banks and cash balances maintained. As of March 31, 1999 combined retained earnings of the subsidiary banks were $51.0 million, of which $11.7 million was available for the payment of dividends to the Parent Company without obtaining prior approval from bank regulatory agencies. As a practical matter, payment of future dividends is also subject to the maintenance of other capital ratio requirements. Management expects that in the aggregate its subsidiary banks will continue to have the ability to dividend adequate funds to the Parent Company during the remainder of 1999. The Parent Company had cash balances of $30.4 million on March 31, 1999. The Company's objective as it relates to liquidity is to insure that subsidiary banks have funds available to meet deposit withdrawals and credit demands without unduly penalizing profitability. In order to maintain a proper level of liquidity, the banks have several sources of funds available on a daily basis which can be used for liquidity purposes. These sources of funds primarily include the subsidiary banks' core deposits, consisting of both business and nonbusiness deposits; cash flow generated by repayment of loan principal and interest; and federal funds purchased and securities sold under agreements to repurchase. For the longer term, the liquidity position is managed by balancing the maturity structure of the balance sheet. This process allows for an orderly flow of funds over an extended period of time. Liquid assets consist of cash and due from banks, short-term investments, and securities available for sale. At March 31, 1999, such assets totaled $292 million, an increase of $9 million from year end 1998. Net cash provided by operating activities totaled $3.3 million for the first quarter of 1999, a decrease of $1.4 million compared to the same quarter last year. The decrease is primarily due to an increase in net mortgage loans originated for sale of $1.7 million for the current quarter. Net cash provided by investing activities was $11.7 million for the current quarter, an increase of $2.6 million. The increase is a result of an increase in net securities purchased of $5.2 million, a decrease in net loans originated for investment of $ 4.5 million, and a decrease in premises and equipment purchases of $2.0 million. Net cash used in financing activities was $657 thousand for the period ended March 31, 1999 compared to $79.5 million in the same period in 1998. The decrease is primarily attributed to a $61.9 million decrease in net cash used related to deposits and a $17.4 million increase in net cash provided related to other borrowed funds. CAPITAL RESOURCES Shareholders' equity was $125 million on March 31, 1999, an increase of $787 thousand from year end 1998. The Company purchased 14 thousand shares of its outstanding common stock during the first quarter of 1999 for a total cost of $482 thousand. The Company issued 285 shares of common stock during the first quarter pursuant to its nonqualified employee stock option plan. Dividends of $2.1 million or $.28 per share were declared during the first quarter of 1999, an increase of 16.7% per share compared to the first quarter of 1998. Consistent with the objective of operating a sound financial organization, the Company's goal is to maintain capital ratios well above the regulatory requirements. The Company's capital ratios as of March 31, 1999, 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 19.30% 4.00% 6.00% Total risk based 20.55% 8.00% 10.00% Leverage 12.45% 4.00% 5.00% The capital ratios of all the subsidiary banks, on an individual basis, were in excess of the applicable minimum regulatory capital ratio requirements at March 31, 1999. YEAR 2000 COMPLIANCE The Company is aware of the issues associated with the programming code in computer systems that use two digits rather than four to define the applicable year. As a result of methods used by earlier programmers, many computer programs and other equipment using embedded technology, such as microchips, are unable to distinguish the year 2000 from the year 1900. If left uncorrected this problem could result in a major system failure, miscalculations, and other disruptions of operations. A number of computer systems which are affected by the Year 2000 are utilized by the Company to operate its day-to-day business. Most of these systems use software developed by and licensed from third party software vendors. FCB Services, the Company's data processing subsidiary, provides essential support for virtually all of the Company's subsidiaries as well as providing data processing services to unrelated third party banks. Therefore, it is vital that the Year 2000 issues are successfully resolved in a timely matter. Failure to appropriately examine and correct systems that are critical to the Company's operations could have a material adverse effect on its operations and financial performance. The Company's plan for achieving compliance is not only focused on its own data processing systems, but also on the compliance of its customers and other third parties. In particular, commercial loan customers that are not Year 2000 compliant could become a repayment risk. Therefore, the Company is continuing to inform its significant commercial loan customers of the need to become Year 2000 compliant. The Company's initial assessment of commercial loan customers indicates no material impact to the Company. However, the Company will continue to monitor this risk on an ongoing basis. The Company has formed an oversight committee to coordinate the Year 2000 compliance process. This process has been divided into five phases as prescribed by regulatory guidelines. These phases include awareness, assessment, renovation, validation, and implementation. The awareness, assessment, and renovation phases generally include defining the Year 2000 problem and gaining executive level support for the resources necessary to perform compliance tasks; establishing a team to develop an overall strategy; assessing the size and complexity of the problem and detailing the magnitude of the effort necessary to address the issues, including noninformation technology systems that are dependent on embedded microchips; and addressing the need for computer code enhancements, hardware and software upgrades, system replacements, vendor certification, and other associated changes. These first three phases are complete. The primary results of the first three phases are as follows: procedures were established to verify that all new purchases are Year 2000 compliant; the assessment of mission critical applications was completed in September 1997; and a new Year 2000 compliant mainframe computer was placed into service in May 1998. The validation and implementation phases consist primarily of testing the changes made to any hardware or software component and to the certification of Year 2000 compliance. In addition to testing upgraded components, connections with other systems must be verified, and all changes should be accepted by internal and external users. As with other phases, the Company will be in ongoing discussions with its vendors, customers, and other third parties regarding the success of their validation efforts. However, the Company cannot control the success of those efforts. The validation and implementation phases of the Company's plan are substantially complete. Testing of mission critical systems is complete and have resulted in satisfactory results. Testing of noncritical systems is substantially complete and have also resulted in satisfactory results. The Company currently plans to complete the testing of its remaining noncritical systems by the end of June 1999. Although mission critical testing is complete and noncritical system testing is substantially complete, the Company will continue to monitor and evaluate these systems throughout the remainder of 1999 and into the year 2000 and take appropriate action where necessary. During 1998, the Company acquired, installed, and tested a new Year 2000 compliant mainframe. Also, a Year 2000 compliant version of the data processing software was installed and is currently functioning appropriately. However, the Company continues to maintain its business continuation plans, for which there are several options in place for partial failure. These plans generally include, but are not limited to, replacing electronic applications with manual processes. For a system wide failure, the Company maintains a hot site agreement with SunGard Recovery Services, Inc., a Pennsylvania Corporation for disaster and recovery services. This agreement, which has been in place since 1990 and tested twice a year, provides replacement mainframe and software for the Company to process with in Philadelphia, Pennsylvania. The Company believes that expenditures required to bring its systems into compliance will not have a material adverse effect on the Company's financial position. To date, substantially all of the expenditures have been absorbed in routine annual maintenance contracts and have not been incremental costs to the Company. This includes the Company's acquisition and installation of the new mainframe computer for approximately $1.5 million in 1998 primarily via a capital lease, which is being financed and depreciated over a five year period. The primary reason for acquiring the new mainframe was to replace an older, less effective mainframe and to increase the Company's data processing capacity and to take advantage of newer, state of the art technology. The mainframe acquisition and related costs were anticipated by the Company, and were not incurred specifically to address Year 2000 compliance. Other related costs have been negligible. The Company does not have a system in place for tracking payroll and related costs for the time that internal employees spend on the Year 2000 project. The Company believes that future expenditures relating specifically to Year 2000 compliance will not be material. However, the Year 2000 problem is pervasive and complex and can potentially affect any computer process. Therefore, no assurance can be given that Year 2000 compliance can be achieved without additional unanticipated expenditures and uncertainties that might affect future operating results. The Company's Year 2000 efforts are ongoing and its overall plan, including contingency planning, will continue to evolve as new information becomes available. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- There have been no material changes in the Company's market risk from December 31, 1998. For information regarding the Company's market risk, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a) List of Exhibits ---------------- 11 Statement re computation of per share earnings 27 Financial data schedule (for SEC use only) b) Reports on Form 8-K ------------------- There were no reports on Form 8-K filed during the fiscal quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: 5/11/99 /s/ Charles S. Boyd - -------------- ------------------- Charles Scott Boyd, President and CEO (Principal Executive Officer) Date: 5/11/99 /s/ Cecil Douglas Carpenter - -------------- --------------------------- Cecil Douglas Carpenter Vice President and CFO (Principal Financial and Accounting Officer) Exhibit 11 Statement re computation of per share earnings ---------------------------------------------- (In thousands, except per share data) Three months ended March 31, 1999 1998 - ---------------------------- ---- ---- Net income, basic and diluted $ 3,503 $ 3,582 ======= ======== Average shares outstanding, basic and diluted 7,514 7,559 ===== ===== Net income per share, basic and diluted $ .47 $ .47 EX-27 2 FDS 3/31/99
9 This schedule contains summary financial information extracted from the March 31,1999 financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 76,273 1,867 27,995 0 185,703 69,526 70,923 600,870 9,030 995,676 824,825 34,405 11,820 2,952 0 0 938 123,688 995,676 13,177 3,240 615 17,032 6,334 6,842 10,190 194 3 8,133 4,877 4,877 0 0 3,503 0.47 0.46 4.80 1,113 1,624 0 0 9,048 480 268 9,030 9,030 0 0
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