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, 2000
[ ] 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
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(Exact name of registrant as specified in its charter)
Kentucky 61-1017851
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
P.O. Box 309, 202 West Main St.
Frankfort, Kentucky 40601
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(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
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(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.125 per share Par Value
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(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 21, 2001 was $232,980,931.
As of March 21, 2001, there were 6,967,654 shares issued and outstanding.
Documents incorporated by reference:
Portions of the Registrant's 2000 Annual Report to Shareholders are
incorporated by reference into Part II. Portions of the Registrant's Proxy
Statement relating to the Registrant's 2001 Annual Meeting of Shareholders
are incorporated by reference into Part III.
An index of exhibits filed with this Form 10-K can be found on page 15.
FARMERS CAPITAL BANK CORPORATION
FORM 10-K
INDEX
Page
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 11
Part III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management 11
Item 13. Certain Relationships and Related Transactions 11
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 12
Signatures 14
Index of Exhibits 15
PART I
ITEM 1. BUSINESS
ORGANIZATION
Farmers Capital Bank Corporation (the "Registrant" or the "Company") is a
financial holding company. The Registrant was originally formed as a bank
holding company under the Bank Holding Company Act of 1956, as amended on
October 28, 1982, under the laws of the Commonwealth of Kentucky. During 2000,
the Registrant elected to change from a bank holding company to a financial
holding company (see discussion in Supervision and Regulation section). 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 Co. ("Farmers Bank"), Frankfort, Kentucky; United
Bank & Trust Co. ("United Bank"), Versailles, Kentucky; Lawrenceburg National
Bank ("Lawrenceburg Bank"), Harrodsburg, Kentucky; First Citizens Bank,
Shepherdsville, Kentucky; Farmers Bank and Trust Company ("Farmers Georgetown
Bank"), Georgetown, Kentucky; and Kentucky Banking Centers, Inc. ("Ky. Banking
Centers"), Glasgow, Kentucky. The Registrant also owns FCB Services, Inc., ("FCB
Services"), a nonbank data processing subsidiary located in Frankfort, Kentucky
and Kentucky General Life Insurance Company, Inc., ("Kentucky General"), a
nonbank insurance agency subsidiary located in Frankfort, Kentucky. The
Registrant's banking operations are aggregated into one reportable operating
segment. As of December 31, 2000, the Registrant had $1.2 billion 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 and 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 chartered 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, 2000, it had total consolidated assets of $601 million, including
net loans of $266 million. On the same date, total deposits were $452 million
and shareholders' equity totaled $44 million.
Farmers Bank had four subsidiaries at year end 2000: Farmers Bank Realty Co.
("Realty"), Leasing One Corporation ("Leasing One"), Farmers Capital Insurance
Corporation ("Farmers Insurance"), and E Properties, Inc. ("E Properties").
Farmers Bank also participated 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 $3.3 million on December 31, 2000.
Leasing One was incorporated in August, 1993 to operate as a commercial
equipment leasing company. It is located in Frankfort and is currently licensed
to conduct business in thirteen states. In 1997, it began to service leases for
unaffiliated third parties. At year end 2000 it had total assets of $19.2
million.
Farmers Insurance was organized in 1988 to engage in insurance activities
permitted to the Registrant by federal and state law. This corporation, which
had no activity prior to 1998, was capitalized by Farmers Bank in December 1998
and acts as an agent for Commonwealth Land Title Co. At year end 2000 it had
total assets of $54 thousand. Farmers Insurance has a 50% interest in Farmers
Fidelity Insurance Company, LLP ("Farmers Fidelity"). The Creech & Stafford
Insurance Agency, Inc., an unrelated party to the Registrant, also has a 50%
interest in Farmers Fidelity.
E Properties was incorporated on May 5, 2000. This company is involved in real
estate management and liquidation for properties repossessed by Farmers Bank. E
Properties had total assets of $11 thousand on December 31, 2000.
Farmers Bank had 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 had a
50% interest in ATM. ATM was dissolved in December 2000, and the total remaining
assets were distributed to its partners.
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. During 1997, it purchased a building in Midway for
the purpose of moving its existing Midway branch. The new building allows the
bank to offer drive thru services to its customers in Midway. United Bank is the
largest bank chartered in Woodford County with total assets of $144 million and
total deposits of $128 million at December 31, 2000.
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. During 1998, it was granted permission by the Office of
the Comptroller of the Currency to move its charter and main office to
Harrodsburg, Kentucky in Mercer County. Construction of the new site in
Harrodsburg was completed and operations began there in July 1999. Lawrenceburg
Bank conducts business at the Harrodsburg site and two branches in Anderson
County, Kentucky. Lawrenceburg Bank is the largest bank chartered in Mercer
County with total assets of $115 million and total deposits of $104 million at
December 31, 2000.
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. During 1997, it applied and was granted permission by
the Kentucky Department of Financial Institutions to move its charter and main
office to Shepherdsville, Kentucky in Bullitt County. First Citizens Bank
completed construction of the site and began operations in April 1998. During
1999, First Citizens Bank closed its South Dixie branch in Elizabethtown,
Kentucky. It now conducts business in its four branches in Hardin County,
Kentucky along with its principal office in Shepherdsville. First Citizens Bank
is the second largest bank chartered in Bullitt County with total assets of $140
million and total deposits of $119 million at December 31, 2000.
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. As a result of
this notice, the branch was relocated in the downtown Georgetown area. Farmers
Georgetown Bank is the largest bank chartered in Scott County with total assets
of $149 million and total deposits of $119 million at December 31, 2000.
On June 15, 1987, the Registrant acquired Horse Cave State Bank, a state
chartered bank originally organized in 1926. During 1997, it received approval
from the Kentucky Department of Financial Institutions to move its charter to
Glasgow, Kentucky. Subsequent to that approval, Horse Cave State Bank changed
its name to Kentucky Banking Centers, Inc. Ky. Banking Centers is engaged in a
general banking business providing full service banking to individuals,
businesses, and governmental customers. It conducts business in its principal
office in Glasgow and two branches in Hart County, Kentucky. Ky. Banking Centers
is the fourth largest bank chartered in Glasgow with total assets of $86 million
and total deposits of $72 million at December 31, 2000.
The Registrant's subsidiary banks make first and second residential mortgages
secured by the real estate not to exceed 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.
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. FCB Services had total assets of $2.9 million at December
31, 2000.
Kentucky General was incorporated on June 22, 2000 to engage in insurance
activities permitted by federal and state law. This corporation was inactive as
of December 31, 2000.
SUPERVISION AND REGULATION
The Registrant was originally registered as a bank holding company and was
restricted to those activities permissible under the Bank Holding Company Act of
1956, as amended ("BHC Act"). The BHC Act provides for regulation, supervision,
and examination by the Board of Governors of the Federal Reserve System. The
Registrant had the option of becoming a financial holding company upon the
Gramm-Leach-Bliley Act ("GLB Act") becoming law on November 12, 1999. The GLB
Act permits an expanded list of permissible activities for those companies
meeting the requirements and electing to operate in accordance with the GLB Act.
The Registrant elected this option on June 9, 2000. The Federal Reserve will
continue to be the primary regulatory agency under the GLB Act. The Registrant
is required to file various reports with the Federal Reserve Board ("FRB")
regarding its business operations and the business operations of its
subsidiaries. In addition, the FRB regulates the Registrant's business
activities in a variety of other ways, including, but not limited to,
limitations on acquiring control of other banks and bank holding companies,
limitations on activities and investments, and regulatory capital requirements.
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
Banking Act and the Federal Reserve System under the Federal Reserve Act. Other
regulations that apply to the Registrant's bank subsidiaries include, but are
not limited to, insurance of deposit accounts, capital ratios, payment of
dividends, liquidity requirements, the nature and amount of investments that can
be made, transactions with affiliates, community and consumer lending, and
internal policies and control.
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 that may be offered. During 2000, the State
Wide Branching Bill became effective, which allows banks to open a branch
anywhere in the state of Kentucky. Previously, banks were limited to the county
where the main office was located.
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 an out of state bank.
The Financial Reform, Recovery and Enforcement Act of 1989 provides that a
holding company's controlled insured depository institutions are liable for any
loss incurred by the Federal Deposit Insurance Corporation ("FDIC") in
connection with the default of, or any FDIC assisted transaction involving, an
affiliated insured bank.
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.
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 become 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 that
will benefit the community.
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 Registrant 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 charged on loans and deposits.
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, 2000, the Registrant and its subsidiaries had 456 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. Employees are not represented by a union. Management and employee
relations are good.
During 1997, the Registrant's Board of Directors approved its Stock Option Plan
("Plan"), which grants certain eligible employees the option to purchase a
limited number of the Registrant's common stock. The Plan specifies the
conditions and terms that the grantee must meet in order to exercise the
options. The Plan was subsequently ratified by the Registrant's shareholders at
its annual meeting held on May 12, 1998.
ITEM 2. PROPERTIES
The Registrant leases its main office from Realty.
Farmers Bank and its subsidiaries currently own or lease nine buildings. Farmers
Bank operates at five locations, 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 in Harrodsburg and its two branch sites in Lawrenceburg. 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
located in a grocery store. Farmers Georgetown Bank owns its main office,
another branch in Georgetown, and one in Stamping Ground, Kentucky. Farmers
Georgetown Bank's third branch is located in a leased facility. Ky. Banking
Centers owns its main office in Glasgow, Kentucky and its branch site in Horse
Cave, Kentucky. It leases its branch facilities in Munfordville, Kentucky.
ITEM 3. LEGAL PROCEEDINGS
Farmers Bank was named, on September 10, 1992, as a defendant in Case No.
92CIO5734 in Jefferson Circuit Court, Louisville, Kentucky, Earl H. Shilling et
al. v. Farmers Bank & Capital Trust Company. Details of this case have been
disclosed in the 1999 Annual Report on Form 10-K and subsequent 10-Q filings.
The named plaintiffs purported to represent a class consisting of all present
and former owners of the County of Jefferson, Kentucky, Nursing Home Refunding
Revenue Bonds (Filson Care Home Project) Series 1986A and County of Jefferson,
Kentucky, Nursing Home Improvement Revenue Bonds (Filson Care Home Project)
Series 1986B (collectively "the Bonds"). The plaintiffs alleged that the class
had been damaged through a reduction in the value of the Bonds and a loss of
interest on the Bonds because of the actions of the Bank in its capacity as
indenture trustee for the Bondholders. The plaintiffs demanded compensatory and
punitive damages.
On July 6, 1993, the Court denied the plaintiffs' motion to certify the case as
a class action. Subsequently, the plaintiffs amended their complaint to join
additional Bondholders as plaintiffs. The plaintiffs claimed to hold Bonds in
the aggregate principal amount of $480,000. Before trial, the Court dismissed
thirty-nine of the plaintiffs because they were unable or unwilling to present
testimony to support their claims.
The case was tried to a jury beginning on March 28, 2000 on the claims of four
plaintiffs holding Bonds in the aggregate principal amount of $80,000. The Court
granted a directed verdict in favor of the Bank on the plaintiff's claim that
the Bank had engaged in commercial bribery and that the legal fees that were
paid by the Bank should be disgorged because of an alleged conflict of interest
of the Bank's counsel. The jury found for the plaintiffs on the claim that the
Bank had breached its fiduciary duty and awarded the plaintiffs $99,875 in
compensatory damages and $600,000 in punitive damages.
The Bank filed a motion for judgment notwithstanding the verdict or, in the
alternative, for a new trial, asserting that the jury's verdict that the Bank
breached its fiduciary duty was not supported by sufficient evidence, that the
jury's award of damages was speculative and was not supported by the evidence,
and that the jury's award of punitive damages was not supported by sufficient
evidence. The Bank also asserted that a new trial is warranted because of the
erroneous admission of evidence concerning legal fees paid by the Bank.
Plaintiffs filed appeals contending that the denial of class certification was
erroneous, that the individual plaintiffs should not have been dismissed from
the lawsuit, that certain evidence was erroneously excluded, and that the
directed verdict regarding the disgorgement of legal fees and the commercial
bribery claims was erroneous. On August 1, 2000 the Kentucky Court of Appeals
dismissed the appeals as having been prematurely filed.
On January 3, 2001 the Jefferson Circuit Court entered judgment in favor of the
Bank notwithstanding the jury's verdict in favor of the plaintiffs, holding that
the Bank reasonably relied in good faith on the advice of its counsel, that
there was no evidence that the Bank breached its fiduciary duty to the
plaintiffs, and that there was no evidence that the Bank caused the plaintiff's
losses.
On January 31, 2001 the plaintiff bondholders appealed, and on February 9, 2001
defendant Bank cross-appealed, the judgment of the Jefferson Circuit Court to
the Kentucky Court of Appeals.
In their appeal, the Bondholders claim that the trial court's denial of class
certification was erroneous, that certain individual plaintiffs should not have
been dismissed from the lawsuit, that the trial court erroneously directed a
verdict against them on the issue of a conflict of interest, and that the
judgment notwithstanding the verdict was erroneously granted because the
evidence was sufficient to support the jury's verdict.
In its cross-appeal, the Bank claims that the trial court erroneously bifurcated
the trial on the issue of liability and damages, that certain witnesses should
have been excluded from the trial, that the Bank should have been granted
summary judgment, and that certain evidence and testimony regarding attorneys'
fees should have been excluded.
The Bank intends to vigorously pursue its pending motion and to defend plaintiff
claims. It is not possible at this stage of the proceedings to make any
prediction as to the outcome.
As of December 31, 2000, there were various other pending legal actions and
proceedings against the Company, including these above, arising from the normal
course of business and in which claims for damages are asserted. Management,
after discussion with legal counsel, believes that these actions are without
merit and that the ultimate liability resulting from these legal actions and
proceedings, if any, will not have a material adverse effect upon the
consolidated financial statements of the Company.
ITEM 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 information set forth under the sections "Shareholder Information" and
"Stock Prices" on page 30 of the 2000 Annual Report to Shareholders is hereby
incorporated by reference. Additional information set forth under Note 16 to the
Registrant's Consolidated Financial Statements on page 49 of the 2000 Annual
Report to Shareholders is also hereby incorporated by reference.
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. Knight Securities LP
(502) 588-8400 or (800) 302-9197
(800) 444-1854
Morgan, Keegan and Company
(800) 260-0280
ITEM 6. SELECTED FINANCIAL DATA
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December 31,
(In thousands, except per share data) 2000 1999 1998 1997 1996
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RESULTS OF OPERATIONS
Interest Income $ 75,481 $ 69,034 $ 69,681 $ 67,360 $ 67,485
Interest Expense 32,536 27,184 29,147 27,450 28,703
Net Interest Income 42,945 41,850 40,534 39,910 38,782
Provision for Loan Losses 2,472 2,863 1,134 1,830 4,162
Net Income 14,380 13,930 14,247 14,103 12,656
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PER SHARE DATA
Net Income -
Basic and Diluted $ 1.97 $ 1.86 $ 1.89 $ 1.86 $ 1.65
Cash Dividends Declared 1.17 1.13 1.00 .855 .745
Book Value 17.49 16.82 16.47 15.48 14.43
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SELECTED RATIOS Percentage of Net Income to:
Average Shareholders' Equity (ROE) 11.61% 11.20% 11.88% 12.50% 11.80%
Average Total Assets (ROA) 1.40 1.41 1.49 1.56 1.41
Percentage of Dividends Declared to
Net Income 59.33 60.66 53.02 45.90 45.21
Percentage of Average Shareholders'
Equity to Average Total Assets 12.06 12.58 12.55 12.46 11.94
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Total Shareholders' Equity $ 125,461 $ 125,106 $ 123,839 $ 117,044 $ 109,596
Total Assets 1,204,752 1,039,787 992,338 1,014,183 925,319
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 7,304 7,478 7,555 7,572 7,684
Diluted 7,307 7,478 7,555 7,572 7,684
--------------------------------------------------------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion on pages 18 through 31 of the 2000 Annual Report to Shareholders
is hereby incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the item "Market Risk Management" on page 27 of
the 2000 Annual Report to Shareholders is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth below on pages 33 through 54, and the inside back
cover of the 2000 Annual Report to Shareholders is hereby incorporated by
reference:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Shareholder Information
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant has had no disagreement on accounting and financial disclosure
matters and has not changed accountants during the three year period ended
December 31, 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Positions and Years of Service
Offices With With the
Executive Officer 1 Age the Registrant Registrant
------------------- --- ------------------------ ------------------
Charles S. Boyd 59 President and CEO, 37*
Director 2
James H. Childers 58 Executive Vice President, 31*
Secretary, General Counsel,
Director 3
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 8, 2001 which will be filed with the
Commission on or about April 2, 2001, pursuant to Regulation 14A.
* Includes years of service with the Registrant and Farmers Bank.
1 For Regulation O purposes, Frank W. Sower, Jr., Chairman of the Registrant's
board of directors, is considered an executive officer in name only.
2 Also a director of Farmers Bank, Ky. Banking Centers, Farmers Georgetown Bank,
United Bank, Lawrenceburg Bank, First Citizens Bank, FCB Services and Money
One (prior to the dissolution of Money One in 1996).
3 Also a director of Farmers Bank, Ky. Banking Centers, First Citizens Bank, and
Farmers Insurance.
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 8, 2001 which will be filed
with the Commission on or about April 2, 2001, pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
2000 Annual Report
To Shareholders
(a)1. FINANCIAL STATEMENTS Page
Independent Auditors' Report 33
Consolidated Balance Sheets at
December 31, 2000 and 1999 34
Consolidated Statements of Income
for the years ended December 31, 2000, 1999, and 1998 35
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2000, 1999, and 1998 36
Consolidated Statements of Changes in
Shareholders' Equity for the years
ended December 31, 2000, 1999, and 1998 37
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999, and 1998 38
Notes to Consolidated Financial Statements 39-54
(a)2. FINANCIAL STATEMENT SCHEDULES
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.
(a)3. EXHIBITS:
13. Annual Report to Shareholders
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
(b) REPORTS ON FORM 8-K
On January 11, 2001, the Registrant filed a Form 8-K in regards to the
case of Schilling, et al vs. Farmers Bank & Capital Trust Co. As
reported in the 10-Q's, filed on behalf of the Registrant for the
quarters ending March 31, 2000 and June 30, 2000, the Registrant's
largest subsidiary, Farmers Bank & Capital Trust Co. had filed a motion
for judgment notwithstanding the verdict in the above mentioned case.
On January 3, 2001 the Jefferson Circuit Court entered judgment in
favor of Farmers Bank & Capital Trust Co. ("the Bank") notwithstanding
the jury's verdict in favor of the plaintiffs, holding that the Bank
reasonably relied in good faith on the advice of it's counsel, that
there was no evidence that the Bank breached it's fiduciary duty to the
plaintiffs, and that there was no evidence that the Bank caused the
plaintiffs' losses.
The plaintiffs may appeal the judgment entered in favor of the Bank to
the Kentucky Court of Appeals within 30 days of the entry of judgment.
The Bank will contest any such appeal.
Financial statements were not required with this Form 8-K.
(c) EXHIBITS
See Index of Exhibits set forth on page 15.
(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 S. Boyd
President and Chief Executive Officer
Date: 3/14/01
--------------------------------------
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 3/14/01
------------------------- and Director (principal executive -------------------
Charles S. Boyd officer of the Registrant)
/s/ Frank W. Sower, Jr. Chairman 3/25/01
------------------------- -------------------
Frank W. Sower, Jr.
/s/ G. Anthony Busseni Director 3/16/01
------------------------- -------------------
G. Anthony Busseni
/s/ Lloyd C. Hillard, Jr. Director 3/15/01
------------------------- -------------------
Lloyd C. Hillard, Jr.
/s/ Dr. John D. Sutterlin Director 3/20/01
------------------------- -------------------
Dr. John D. Sutterlin
/s/ Stokes A. Baird, IV Director 3/15/01
------------------------- -------------------
Stokes A. Baird, IV
/s/ Harold G. Mays Director 3/19/01
------------------------- -------------------
Harold G. Mays
/s/ E. Glenn Birdwhistell Director 3/19/01
------------------------- -------------------
E. Glenn Birdwhistell
/s/ Michael M. Sullivan Director 3/21/01
------------------------- -------------------
Michael M. Sullivan
/s/ J. Barry Banker Director 3/16/01
------------------------- -------------------
J. Barry Banker
/s/ James H. Childers Director 3/16/01
------------------------- -------------------
James H. Childers
/s/ Robert Roach, Jr. Director 3/13/01
------------------------- -------------------
Robert Roach, Jr.
/s/ C. Douglas Carpenter Vice President and CFO 3/13/01
------------------------- (principal financial and -------------------
C. Douglas Carpenter accounting officer)
INDEX OF EXHIBITS
Page
13. 2000 Annual Report to Shareholders Enclosed
21. Subsidiaries of the Registrant 16
23. Independent Auditors' Consent 17
EXHIBIT 13
2000 ANNUAL REPORT TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------------------------------
December 31,
(In thousands, except per share data) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Interest Income $ 75,481 $ 69,034 $ 69,681 $ 67,360 $ 67,485
Interest Expense 32,536 27,184 29,147 27,450 28,703
Net Interest Income 42,945 41,850 40,534 39,910 38,782
Provision for Loan Losses 2,472 2,863 1,134 1,830 4,162
Net Income 14,380 13,930 14,247 14,103 12,656
-------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net Income -
Basic and Diluted $ 1.97 $ 1.86 $ 1.89 $ 1.86 $ 1.65
Cash Dividends Declared 1.17 1.13 1.00 .855 .745
Book Value 17.49 16.82 16.47 15.48 14.43
-------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS Percentage of Net Income to:
Average Shareholders' Equity (ROE) 11.61% 11.20% 11.88% 12.50% 11.80%
Average Total Assets (ROA) 1.40 1.41 1.49 1.56 1.41
Percentage of Dividends Declared to
Net Income 59.33 60.66 53.02 45.90 45.21
Percentage of Average Shareholders'
Equity to Average Total Assets 12.06 12.58 12.55 12.46 11.94
--------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 125,461 $ 125,106 $ 123,839 $ 117,044 $ 109,596
Total Assets 1,204,752 1,039,787 992,338 1,014,183 925,319
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 7,304 7,478 7,555 7,572 7,684
Diluted 7,307 7,478 7,555 7,572 7,684
--------------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
Letter to Our Shareholders 2
Farmers Capital Bank Corporation Board of Directors and Officers 3
Insurance: Innovation, Integration, Implementation 4
Affiliates' Directors and Officers 12
Glossary of Financial Terms 17
Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
Management's Report on Responsibility for Financial Reporting 32
Independent Auditors' Report 33
Consolidated Balance Sheets 34
Consolidated Statements of Income 35
Consolidated Statements of Comprehensive Income 36
Consolidated Statements of Changes in Shareholders' Equity 37
Consolidated Statements of Cash Flow 38
Notes to Consolidated Financial Statements 39
Shareholder Information 57
LETTER TO OUR SHAREHOLDERS
Farmers Capital Bank Corporation reported net income of $14.4 million for
year-end 2000. This is an increase of $450 thousand over the same period of 1999
or 3.2%. Diluted net income per share of $1.97 for the year ended December 31,
2000 compared to $1.86 for the prior year represents an increase of 5.9%.
In comparison with 1999, interest income from loans for year 2000 increased
$5.8 million, or 10.7%, and interest on temporary investments increased $901
thousand, or 65.9%. Interest on deposits increased $3.8 million, or 15.3%, and
interest on other borrowed funds increased $1.5 million, or 71.3%. As a result,
net interest income increased $1.1 million, or 2.6%. The provision for loan
losses decreased $391 thousand, or 13.7%. Noninterest income was up 2.5% while
noninterest expense increased $744 thousand or 2.3%. From December 31, 1999 to
December 31, 2000, the effective tax rate increased from 26.0% to 27.7%.
A share buy-back program has been in effect for several years. The Company
purchased 278 thousand shares at a total price of $9.3 million during 2000. The
positive impact of the buy-back program can be seen in the earnings per share
results. The earnings per share growth is 270 basis points higher than the net
income growth for the year ended December 31, 2000.
As a financial institution, Farmers Capital Bank Corporation specializes in
banking services and products. Increasing competition, not only from other banks
but from nontraditional avenues which now provide banking services, has us
watching our profit margins. To combat this problem, we need new areas of
growth. Changes in banking laws have made insurance as an ongoing business
venture a possibility for us. We have always been comfortable with the
discussion of insurance at the lending desk because of our term insurance
policies for Credit Life and Accident and Health . However, the thought of true
insurance relationships is a novel concept for the traditional banker.
At Farmers, we already know about the types of insurance policies needed to
complete the loan process. We are now able to offer coverage that encourages
long term relationships, providing greater convenience for our customers and
bringing our strengths into play: the knowledge of insurance needs, the
understanding of relationship banking, and the innate ability to serve the
customer.
We studied the process of insurance and the best vehicle to deliver it to
our customers for more than four years, starting with the simple yet successful
idea of title insurance. Since its inception in December of 1998, Farmers Title
Company has been profitable. We now write title insurance policies on over 70%
of our mortgage loans. At year-end, Farmers Title Company had generated over 45%
of our entire insurance income.
Cautiously, we dug further into insurance - how do we provide full service
insurance to our customers without high costs and years of preparation and
training? We investigated the strengths and weaknesses of three potential
venues: buying an existing agency, starting one from the ground up or forming a
partnership. With the formation of the Farmers Fidelity Property and Casualty
Insurance Company, LLP and the addition of Jamey Bennett to our corporation, we
found the winning combination for Farmers Capital Bank Corporation. Our entrance
into property and casualty also gave us the opportunity to re-examine our own
policies. These included our Directors and Officers Liability coverage and
property and casualty coverage throughout the corporation. The results were very
gratifying: we more than doubled our coverages while realizing a savings in
premiums of over $100 thousand. These results alone increased our interest in
the business of insurance; if we save, so will our customers.
Our passage into insurance is further detailed in the narrative of this
annual report. Please read it and realize that the vision, the teamwork, and the
expertise that brought us to the reality of profitable insurance sales is the
same vision, teamwork, and expertise that make Farmers Capital Bank Corporation
a strong and successful company.
/s/ Frank W. Sower, Jr. /s/ Charles S. Boyd
Frank W. Sower, Jr. Charles S. Boyd
FARMERS CAPITAL BANK CORPORATION BOARD OF DIRECTORS
Frank W. Sower, Jr., Chairman, retired Appeals Officer, Internal Revenue Service
Charles S. Boyd, President and CEO of the Corporation
Stokes A. Baird, IV, Attorney and Chairman of the Board of Directors of Kentucky
Banking Centers, Inc.
J. Barry Banker, President of the Stewart Home School
E. Glenn Birdwhistell, Realtor and Auctioneer and Chairman of the Board of
Directors of Lawrenceburg National Bank
G. Anthony Busseni, President and CEO of Farmers Bank & Capital Trust Co.
James H. Childers, Executive Vice President, Secretary and General Counsel of
the Corporation
Lloyd C. Hillard, Jr., President and CEO of First Citizens Bank
Harold G. Mays, President of H.G. Mays Corporation, an asphalt paving firm
Robert Roach, Jr., retired Teacher, City Commissioner
Michael M. Sullivan, retired Senior Vice President of FCB Services, Inc.
Dr. John D. Sutterlin, retired Dentist and Chairman of the Board of Directors of
Farmers Bank & Capital Trust Co.
E. Bruce Dungan, Advisory Director, retired President and CEO of Farmers Capital
Bank Corporation
Charles T. Mitchell, CPA, Advisory Director, Consultant, Charles T. Mitchell
Co., CPA
Dr. John P. Stewart, Chairman Emeritus, retired Physician, Director of Stewart
Home School
OFFICERS
Charles S. Boyd, President and CEO
James H. Childers, Executive Vice President, Secretary and General Counsel
Allison B. Gordon, Senior Vice President
C. Douglas Carpenter, Vice President, Chief Financial Officer
Linda L. Faulconer, Vice President, Human Resources
Janelda R. Mitchell, Vice President, Marketing
Dawn M. Simpson, CPA, Vice President, Auditing
Anna Kaye Hall, Assistant Vice President, Finance
Ann Hodgkin, Human Resources Officer
Teresa Tipton, Human Resources Officer
INSURANCE: INNOVATION, INTEGRATION, IMPLEMENTATION
JAMES CHILDERS - Innovation: "to introduce changes and new ideas"
For a corporation constantly seeking new ways to improve profitability and
variety to our customers, insurance was the most logical step. Adding a broad
range of insurance products to the services already offered at Farmers Capital
Bank Corporation was a natural fit.
In lending, insurance coverage is required on certain types of collateral
and a lender can be the first person to discuss insurance with a customer -
property and casualty for asset coverage, credit life and accidental health for
consumer loans, and mortgage protection for homeowners.
James Childers, legal counsel for the corporation, was a visionary for
Farmers Capital Bank Corporation. Through extensive study of state legislation
and economic trends, he realized a growing interest in allowing banks to offer
insurance. Both the banking and insurance industries lobbied for a blending of
the two to allow broader avenues of service to each. Anticipating legislative
change, Mr. Childers began laying the groundwork.
Farmers Title Company was formed in 1998. Title insurance policies on
mortgage loans are a judicious prerequisite to ensure the safety of our assets.
However, among our affiliates there were no common rules of when to require it,
nor a common cost. With the formation of the title company and the assistance of
a local firm of attorneys, we were able to provide a standard for title
insurance coverage both in policy and in cost.
Kentucky legislators passed a law enabling community banks to provide
property and casualty insurance lines to their customers in 1998. This could be
done either through a solely owned agency or through a joint venture with an
existing agency. Childers then took the idea one step further. At a seminar for
banks interested in insurance, Mr. Childers discussed our potential with Dale
Creech, partner of the Creech and Stafford Insurance Agency of Lexington,
Kentucky. This discussion proved advantageous to both parties; Creech and
Stafford Agency was exploring inroads to additional markets. With more than 125
years of combined insurance sales and service, qualified personnel and
relationships with multiple insurance companies, they were the ready-made answer
to our search for property and casualty insurance offerings. Farmers Capital
Bank Corporation brought new geographic markets, existing and potential
customers and financial service providers trained to sell, to the table. The
partnership, Farmers Fidelity Property and Casualty Insurance Agency LLP, was a
marriage made in heaven.
JAMEY BENNETT - Integration: "to make into a part of the whole"
With the insurance groundwork in place, Farmers Capital Bank Corporation
was ready for the transformation of idea to reality. Insurance services
complement bank offerings and serve as a way to broaden customer relationships
and create greater value, but a plan was needed to progress to this greater
sophistication of benefits. Being novices to the insurance business, we studied
our options. We needed an expert: someone to lead the way into profitability.
While exploring myriad insurance possibilities, Jamey Bennett was
approached to lead the effort for two reasons. Mr. Bennett was an independent
insurance agent with 15 years of experience in offering employee benefits and
was a prime source of information and direction on the insurance business. As
early as 1996, Farmers Capital Bank Corporation had looked at acquiring a
specific third party insurance administrator as an inroad to insurance. Mr.
Bennett was a chief producer for that national third party. It took three years
to lure Jamey away from that agency, and the addition of him to our staff was a
major victory.
Since its inception in 1999, Bennett has served as vice president of the
Capital Insurance Group which provides group benefit services. Solutions for
health insurance, income and asset protection services, and plan administration
have become a boon to our commercial lenders and increased our appeal as a full
service financial provider to other existing and potential customers.
Mr. Bennett and our affiliates' loan officers work together to help
commercial customers as they consider these plans available to their businesses.
This team approach allows the customer the benefit of an experienced loan
officer and an experienced benefit insurance provider without compromising
either function.
Subsequently, Mr. Bennett has also become the interpreter between our
property and casualty insurance lines and our employees.
TONY BUSSENI - Implementation: "to put into practice an idea or theory"
The success of the Farmers Title Company and Capital Insurance Group
ventures proved that we were heading in the right direction. The new partnership
- Farmers Fidelity Property and Casualty Insurance Agency LLP with Creech and
Stafford - was ready to be introduced and implemented.
Tony Busseni , President and CEO of Farmers Bank & Capital Trust Co.,
committed to the insurance programs, realized the importance of commitment and
acceptance by all employees. The insurance businesses were made subsidiaries of
his bank for logical reasons. Farmers Bank with $500 million in assets had the
capacity for these ventures and was willing to subsidize the start-up costs.
However, these costs were minimal; besides Mr. Bennett's salary, there was
little overhead. The office space was located in a bank-owned building with
phone, fax and computer lines already installed. Perhaps the largest
contribution Mr. Busseni made was the involvement of his bank employees. And it
paid off.
Anticipating the employee reaction to "selling insurance," Mr. Busseni
involved them as collaborators in the Farmers Fidelity insurance partnership: he
let the employees try the services themselves.
The first step was to educate the employees. Meetings were held
corporate-wide to discuss what lines of insurance were available and to talk
about the role insurance coverage could play in our customers' financial well
being. Armed with referral brochures and other marketing information, employees
were asked to check their own property and casualty coverage against Farmers
Fidelity's various independent carriers. Then they were encouraged to hand out
the referral brochures to customers, family and friends for the same purpose -
not the hard selling of insurance, but a chance to perform the necessary duty of
up to date insurance inspection.
The results were overwhelming; in a three-month period, more than 1,000
referrals were logged at the Farmers Fidelity office. We had proven that
education, incentive and encouragement made for success when introducing a
unfamiliar service such as insurance.
CONCLUSION
Innovation, Integration and Implementation - key steps for our successful
undertaking of the insurance business. The potential for our growth is
unlimited. With our geographically broad markets, our reach is endless. With our
attained experience and knowledge, our abilities are boundless.
AFFILIATES' DIRECTORS AND OFFICERS
FARMERS BANK & Capital Trust Co.
member FDIC
DIRECTORS
Dr. John D. Sutterlin, Chairman
C. Gary Adkinson
Clyde P. Baldwin
Charles S. Boyd
G. Anthony Busseni
James H. Childers
Don C. Giles
Robert W. Kellerman
David R. Lee
Marvin E. Strong, Jr.
William R. Sykes
John J. Hopkins, Advisory Director
Frank W. Sower, Advisory Director
Joseph C. Yagel, Jr., Advisory Director
OFFICERS
G. Anthony Busseni, President and CEO
Bruce W. Brooks, Executive Vice President, Chief Lending Officer and
Environmental Officer
Elizabeth D. Hardy, Senior Vice President, Retail
Rickey D. Harp, Senior Vice President, Senior Trust Officer
Fontaine Banks, III, Vice President, Investments
George Burgess, Vice President, Commercial Loans
Gregory S. Burton, Vice President, Commercial Loans
L. Hobbs Cheek, CPA, Vice President, Chief Financial Officer
Barbara Conway, Vice President, Main Office Manager
Jack Diamond, Vice President, Trust Investment Officer
Bruce G. Dungan, Vice President, Retail, Security Officer, Compliance Officer,
Bank Secrecy Act Officer
Richard Gobber, Vice President, Retail
Sarah Gowins, Vice President, Commercial Loans
Jane Sweasy, Vice President, East Branch Manager
Nancy W. Whitaker, Vice President, Senior Trust Officer
Brenda Y. Rogers, Executive Secretary
Bonnie Adams, Assistant Vice President, East Branch
Patsy Briscoe, Assistant Vice President, Loan Administration
Gail Combs, Assistant Vice President, Franklin Square Branch Manager
Nancy Gatewood, Assistant Vice President, West Branch Manager
Bobby Hall, Assistant Vice President, Trust Officer
Judy Isaacs, Assistant Vice President
Elizabeth Johns, Assistant Vice President, Trust Officer
Joan Lee, Assistant Vice President, Franklin Square Branch
Lydwina Napier, Assistant Vice President, Commercial Loans
Patricia Norris Peavler, Assistant Vice President, Marketing
Jo Ann Reynolds, Assistant Vice President, Investments
Deborah West, Assistant Vice President, Assistant Manager, Main Office
Karen DiRaimo, Trust Officer
Kay Henninger, Trust Officer
Wesley Stivers, Investment Officer
Margaret Colston, Assistant Cashier, Retail Services
Jennifer Parrish, Assistant Cashier, Retail Services
C. Ray Baldwin, Property Management Director
Sally L. Bell, Assistant Trust Operations Manager
Leigh Ann Young, Assistant Trust Operations Officer
Dorothy H. Switzer, Director of Capital First Travelers
Wendy F. Boardman, Director of Human Resources
UNITED BANK & Trust Co.
member FDIC
DIRECTORS
W. Benjamin Crain, Chairman
Charles S. Boyd
Bobby G. Dotson
J. Stephen Hogg
Michael L. Lawson
J. C. Moraja
Denny Nunnelley
Leighton Riddle
James E. Staples
Shannon Greely Totty
Hampton H. Henton, Advisory Director
Howard B. Montague, Advisory Director
Ben F. Roach, MD, Advisory Director
OFFICERS
J. C. Moraja, President and CEO
Paul A. Edwards, Executive Vice President
Linda C. Bosse, Vice President, Cashier
Joyce L. Eaves, Vice President
Bruce Marshall, Vice President
Spencer A. Wall, Vice President, Branch Manager
Cornelia T. Ethington, Assistant Vice President
Rita Green, Assistant Vice President
Leisa M. Newton, Assistant Vice President, Compliance Officer
Betty K. Poynter, Assistant Vice President, Human Resources
Rick Roberts, Assistant Vice President
John R. Thompson, Loan Officer
Evie P. Knight, Assistant Cashier, Security Officer
Carolyn C. Logan, Assistant Cashier
Carolyn F. Patterson, Assistant Cashier
Sherry T. Reynolds, Assistant Cashier
Patricia R. Stokley, Executive Secretary
LAWRENCEBURG NATIONAL BANK
member FDIC
DIRECTORS
E. Glenn Birdwhistell, Chairman
William T. Bond
Charles S. Boyd
Charles L. Cammack
Keith Freeman
Tom D. Isaac
James McGlone
Donald F. Peach
Oneita M. Perry
C. Douglas Carpenter
Paul Vaughn, Jr.
Thomas B. Ripy, Advisory Director
OFFICERS
Charles L. Cammack, President and CEO
Paul Vaughn, Jr., Executive Vice President, Senior Trust Officer
Gail Gottshall, Executive Vice President
Bob Baughman, Vice President
Ben Birdwhistell, Vice President
Timothy A. Perry, Vice President, Compliance
Bonnie S. Childs, Assistant Vice President, Marketing Representative
Clark Gregory, Assistant Vice President
Linda B. Hahn, Assistant Vice President
Barbara Markwell, Assistant Vice President, Cashier
Warren R. Leet, Assistant Vice President
Drayma Holmes, Assistant Vice President, Branch Manager
Libby Goodlett, Accounting Officer
Beth Barker, Assistant Branch Manager
Teresa Higginbotham, Assistant Branch Manager
Robin Miller, Operations Officer
Sarah Grace, Administrative Assistant
FIRST CITIZENS BANK
member FDIC
DIRECTORS
James E. Bondurant, Chairman
R. Terry Bennett
Charles S. Boyd
Laymon Byers
James H. Childers
R. T. Clagett, DMD
Patricia V. Durbin
William Godfrey, MD
Gerald R. Hignite
Lloyd C. Hillard, Jr.R
ay Mackey
Virgil T. Price, DMD
George Roederer
Martha G. Davis, Director Emeritus
OFFICERS
Lloyd C. Hillard, Jr., President and CEO
H. Y. Davis, IV, Senior Vice President, Senior Loan Administrator
Marilyn B. Ford, Senior Vice President, Cashier and Bank Secrecy Officer
Patricia J. Paris, Senior Vice President, Controller
David P. Tackett, Senior Vice President, Trust Investment Center Director
Richard E. Clements, Vice President, Bullitt County Branch Manager
Scott T. Conway, Vice President, Loan Officer
David E. Hunt, Vice President, Radcliff Branch Manager
Marquetta L. Lively, Vice President, Loan Officer
Mary Lou Mobley, Vice President, CRA Officer and Compliance Officer
Thomas S. Reynolds, Vice President, Trust Operations
Brenda Fullerton, Assistant Vice President, Members First Coordinator
Jeffrey S. Pendleton, Assistant Vice President, Allotment Department
Ronald G. Penwell, Assistant Vice President, Mulberry Branch Manager
Diana Byers, Assistant Cashier, Main Office Branch Manager
Mary P. Edlin, Assistant Cashier, Deposit Processing
Carol A. Goodman, Assistant Cashier and Director of Human Resources
Phyllis Higdon, Assistant Cashier, Branch Manager
Debbie Roberts, Assistant Branch Manager, Bullitt County Branch
Connie Kersey, Operations Officer, Radcliff Branch
Cheryl Jessup, Marketing Director
FARMERS BANK AND TRUST COMPANY
member FDIC
DIRECTORS
Cecil D. Bell, Jr., Chairman
Charles S. Boyd
Allison B. Gordon
Frank R. Hamilton, Jr.
Vivian M. House
R. Sharon McMillin
Joseph C. Murphy
Gervis Showalter
Kenneth Sturgill
Rollie D. Graves, Director Emeritus
Dr. Horace T. Hambrick, Director Emeritus
W. Carrick James, Director Emeritus
Bobby Vance, Director Emeritus
OFFICERS
Joseph C. Murphy, President and CEO
Thomas P. Porter, Executive Vice President
Lynn C. McKinney, Senior Vice President and Cashier
Michael E. Schornick, Jr., Senior Vice President
J. Michael Easley, Vice President
James L. Ewbank, Vice President
Tina M. Johnston, Vice President, Chief Financial Officer
Kimberly E. Marshall, Vice President
Susan K. Tackett, Vice President
Wanda C. Wilson, Vice President
Bonnie M. Glass, Assistant Vice President
Gregory L. Howard, Assistant Vice President
Karen K. Jarvis, Assistant Vice President
Paula S. Moran, Assistant Vice President
Deborah L. Marshall, Assistant Vice President
Linda F. Muszynski, Assistant Vice President
Kimberly T. Thompson, Assistant Vice President
Carole S. Wagoner, Assistant Vice President
Lorraine B. Baldwin, Assistant Cashier
Phyllis True, Assistant Cashier
KENTUCKY BANKING CENTERS, INC.
member FDIC
DIRECTORS
Stokes A. Baird, IV, Chairman
Charles S. Boyd
Sue Bunnell
James H. Childers
Steve Hayes
Larry Jewell
Odell Martin
Phillip Patton
David Shadburne, CPA
Terry Smith
W. T. Austin, Director Emeritus
OFFICERS
Sue Bunnell, President and CEO
David Shadburne, CPA, Executive Vice President and COO
Lewis Bauer, Senior Vice President
Vanessa Puckett, Senior Vice President
Jeffrey Edwards, Vice President
Linda Forbes, Vice President
Jane T. Howell, Assistant Vice President
Greg Isenberg, Assistant Vice President
Patty J. Wright, Assistant Vice President
Daryl Lowe, Cashier and Head Teller
Cindy Atwell, Loan Officer
Karisa Clark, Loan Officer
Melissa Sturgeon, Loan Officer
Ramona Fancher, Assistant Cashier
Carolyn Russell, Assistant Cashier
Sharon Williams, Assistant Cashier
Mellyn Church, Compliance Officer
Debra Willis, Administrative Assistant
FCB SERVICES, INC.
DIRECTORS
E. Bruce Dungan, Chairman
Charles S. Boyd
Sue Bunnell
G. Anthony Busseni
Charles L. Cammack
James H. Childers, Secretary
Allison B. Gordon
Lloyd C. Hillard, Jr.
Donald R. Hughes, Jr.
J. C. Moraja
Joseph C. Murphy
Michael M. Sullivan
Karen R. Wade
OFFICERS
Donald R. Hughes, Jr., President and CEO
Karen R. Wade, Executive Vice President
William Bell, Vice President
Mark A. Hampton, Vice President
Michael Hedges, Vice President
Martin Serafini, Vice President
Bill Ballinger, Assistant Vice President
Steve Bolin, Assistant Vice President
Jeffrey S. Brewer, Assistant Vice President
Rita Kennedy, Assistant Vice President
James F. Palmer, Assistant Vice President
LEASING ONE CORPORATION
DIRECTORS
G. Anthony Busseni, Chairman
C. Douglas Carpenter
L. Hobbs Cheek, CPA
Charles J. Mann
Marvin E. Strong
Bruce W. Brooks
David Lee
OFFICERS
Charles J. Mann, President and CEO
Mark Lester, Vice President
Jim Morris, Vice President
Eddie Miller, Assistant Vice President
FARMERS CAPITAL INSURANCE CORPORATION
DIRECTORS
James H. Childers, Chairman
G. Anthony Busseni
Sue Coles
Jamey Bennett
OFFICERS
James H. Childers, Chairman
G. Anthony Busseni, President
Sue Coles, Secretary
Jamey Bennett, Vice President
Farmers Capital Insurance Corporation
doing business as:
Capital Insurance Group
Farmers Title Company
GLOSSARY OF FINANCIAL TERMS
ALLOWANCE FOR LOAN LOSSES
A valuation allowance to offset credit losses specifically identified in the
loan portfolio, as well as management's best estimate of probable losses
inherent in the remainder of the portfolio at the balance sheet date. The
allowance is determined by management as the result of the assessment of the
risks in the loan portfolio based on past experience. This assessment includes,
but is not limited to, consideration of the current economic conditions, changes
in mix and volume of the loan portfolio and historical net loan charge off
experience.
DIVIDEND PAYOUT
Cash dividends paid on common shares, divided by net income.
BASIS POINTS
Each basis point is one hundredth of one percent. Basis points are calculated by
multiplying percentage points times 100. For example: 3.7 percentage points
equals 370 basis points.
INTEREST RATE SENSITIVITY
The relationship between interest sensitive earning assets and interest bearing
liabilities.
NET CHARGE OFFS
The amount of total loans charged off net of recoveries of loans which have been
previously charged off.
NET INTEREST INCOME
Total interest income less total interest expense.
NET INTEREST MARGIN
Net interest income expressed as a percentage of average earning assets.
NET INTEREST SPREAD
The difference between the yield on earning assets and the rate paid on interest
bearing funds.
OTHER REAL ESTATE OWNED
Real estate not used for banking purposes. For example, real estate acquired
through foreclosure.
PROVISION FOR LOAN LOSSES
The charge against current income needed to maintain an adequate allowance for
loan losses.
RETURN ON AVERAGE ASSETS (ROA)
Net income divided by average total assets. Measures the relative profitability
of the resources utilized by the Company.
RETURN ON AVERAGE EQUITY (ROE)
Net income divided by average common equity. Measures the profitability of the
shareholders' investment in the Company.
TAX EQUIVALENT BASIS
Income from tax-exempt loans and investment securities has been increased by an
amount equivalent to the taxes which would have been paid if this income was
taxable at statutory rates.
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
The number of shares determined by relating (a) the portion of time within a
reporting period that common shares have been outstanding to (b) the total time
in that period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following pages present management's discussion and analysis of the
consolidated financial condition and results of operations of Farmers Capital
Bank Corporation (the "Company"), which include both its banking and nonbanking
subsidiaries. Banking subsidiaries include Farmers Bank & Capital Trust Co. in
Frankfort, KY and its insurance and leasing company subsidiaries; Farmers Bank
and Trust Company in Georgetown, KY; First Citizens Bank in Shepherdsville, KY;
United Bank & Trust Co. in Versailles, KY; Lawrenceburg National Bank in
Harrodsburg, KY; and Kentucky Banking Centers, Inc. in Glasgow, KY. The
Company's only nonbank subsidiary is FCB Services, Inc., a data processing
subsidiary located in Frankfort, KY. The following discussion should be read in
conjunction with the audited consolidated financial statements and related notes
that follow.
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
management of 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
Consolidated net income for 2000 was $14.4 million compared to $13.9 million for
1999, a 3.2% increase. Diluted net income per share for the year was $1.97, up
5.9% from $1.86 reported for 1999. The earnings per share growth was 268 basis
points higher than the net income growth for the year ended December 31, 2000.
This is the positive impact of the share buy back program that has been in
effect for several years. The company purchased 278,000 shares of common stock
at a total price of $9.3 million during 2000. As a result, the diluted weighted
average shares outstanding for 2000 totaled 7.3 million and were 2.3% less than
the weighted average of 7.5 million for 1999.
Other major components of the of the improvement in earnings are as follows:
>> Net interest income increased $1.1 million, or 2.6%.
>> The provision for loan losses decreased $391 thousand, or 13.7%.
>> The increase in noninterest expenses was held to $600 thousand, which
was only 1.8%.
The return on assets was 1.40% in 2000 compared to 1.41% reported in the prior
year. The return on equity increased 41 basis points to 11.61%. This is another
positive reflection of the share buy back program.
INTEREST INCOME
Interest income results from interest earned on earning assets, which primarily
include loans and investment securities. Interest income is affected by volume,
composition of earning assets and the related rates earned on those assets.
Total interest income for 2000 was $75.5 million, up $6.4 million, or 9.3% from
the previous year. The increase in interest income was due to an increase in the
volume of total earning assets and an increase in the rates earned on those
assets in almost identical proportions. The average tax equivalent yield on
total interest bearing assets was 8.35%, up 41 basis points from 1999.
The Company accomplished three goals concerning interest income - 1) increased
interest from growth in loans without sacrificing credit quality standards, 2)
maintained an appropriate interest rate for the level of risk assumed, and 3)
reallocated funds supporting lower earning asset alternatives to higher earning
loans.
Interest income on loans increased $5.8 million, or 10.7%, mainly due to the
increase in volume with some support from an increase in rates. The average
balance of loans increased $48.4 million, or 7.8% compared to the prior year.
Most of this increase was in commercial real estate loans. The tax equivalent
rate earned on loans was 9.12%, up 23 basis points from 1999.
Interest income on taxable investment securities increased $41 thousand, which
was less than 1%. This was due to a decrease in volume as funds were shifted to
higher earning loans. The rate earned increased 71 basis points to 6.35%.
Interest on nontaxable investment securities decreased $326 thousand, or 8.6%.
This was nearly entirely due to a reduction in volume even though the tax
equivalent rate decreased 7 basis points to 6.54%.
Interest income on temporary investments increased $890 thousand for 2000, or
61.5% from the prior year. Temporary investments consist of Federal funds sold,
securities purchased under agreement to resell and to a lesser extent, deposits
in other banks. Volume and rate both contributed to this increase in interest
income. Volume was up $6.7 million on average and the rate increased 153 basis
points to 6.21%.
INTEREST EXPENSE
Interest expense results from incurring interest on interest bearing
liabilities, which primarily include interest bearing deposits, securities sold
under agreement to repurchase, and other borrowed funds. Interest expense is
affected by volume, composition of interest bearing liabilities and the related
rates paid on those liabilities. Total interest expense was $32.5 million for
2000, an increase of $5.4 million, or 19.7% from the prior year. This increase
is primarily due to increases in rate with volume increases contributing to a
lesser degree. The average rate paid on total interest bearing liabilities was
4.36% in 2000, up 58 basis points from 1999.
The Company had to cope with three factors that had a large influence on the
cost of funds during 2000 - 1) additional borrowings were needed to fund the
growth in loan demand, 2) the Federal Reserve Board raised interest rates
several times during the year, and 3) increased competition in our local market
places.
Interest expense on time deposits, the largest component of total interest
expense, increased $2.5 million, or 15.3%. Rate and volume accounted for 69% and
31% of the increase respectively. Interest expense on interest bearing demand
deposits increased $551 thousand, or 13.9%, entirely due to rate. Interest
expense on savings increased $762 thousand, or 16.7%. This increase was also due
to rate and was partially offset by declining volume.
Interest expense on securities sold under agreement to repurchase increased $1.2
million, or 62.1%. The average rate paid during 2000 was 5.9%, up from 4.6% in
1999. Interest expense on other borrowed funds increased $320 thousand, up
greater than 100%. These alternatives were utilized more in 2000 to help fund
the increase in loan demand.
NET INTEREST INCOME
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 table on the following
page represents the major components of the interest earning assets and interest
bearing liabilities on a tax equivalent basis (TE) where tax exempt interest
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).
Tax equivalent net interest income was $44.8 million for 2000, an increase of
$845 thousand, or 1.9% over 1999. The net interest margin was 4.84%, down 7
basis points from the prior year. Changes in net interest income and margin
result from the interaction between the volume and the composition of earning
assets, the related yields, and the associated cost and composition of the
interest bearing liabilities. Accordingly, portfolio size, composition, and the
related yields earned and the average rates paid can have a significant impact
on net interest and margin.
During 2000, the tax equivalent yield on total earning assets increased 5.2%,
but did not keep up with the 15.3% increase in the cost of funds, resulting in
the lower margin and spread. The increase in earning asset volume and rate along
with the reallocation of earning assets more than offset the increase in the
cost of funds and are responsible for the increase in net interest income. The
tax equivalent spread between rates earned on earning assets and rates paid on
interest bearing liabilities decreased 17 basis points to 3.99% for 2000.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
December 31, 2000 1999 1998
Average Average Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------- ------- -------- ---- ------- -------- ---- ------- -------- ----
EARNING ASSETS
Investment Securities
Taxable $145,479 $9,232 6.35% $163,077 $9,191 5.64% $143,567 $8,598 5.99%
Nontaxable 1 75,918 4,967 6.54 83,211 5,499 6.61 77,676 5,189 6.68
Time Deposits with Banks,
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 37,595 2,336 6.21 30,902 1,446 4.68 54,260 2,942 5.42
Loans 1,2,3 667,241 60,834 9.12 618,860 55,036 8.89 589,714 54,908 9.31
------- ------ ---- ------- ------ ---- ------- ------ ----
Total Earning Assets 926,233 $77,369 8.35% 896,050 $71,172 7.94% 865,217 $71,637 8.28%
Allowance for Loan Losses (10,092) (9,272) (9,134)
-------- ------- -------
Total Earning Assets, Net
of Allowance for Loan
Losses 916,141 886,778 856,083
NONEARNING ASSETS
Cash and Due From Banks 66,706 64,464 62,001
Premises and Equipment, net 24,659 24,985 24,083
Other Assets 20,242 12,821 12,973
------ ------ ------
Total Assets $1,027,748 $989,048 $955,140
========== ======== ========
INTEREST BEARING LIABILITIES
Deposits
Interest Bearing Demand $193,982 $4,528 2.33% $192,695 $3,977 2.06% $180,265 $4,343 2.41%
Savings 153,574 5,319 3.46 158,501 4,557 2.88 150,499 4,879 3.24
Time 337,667 19,053 5.64 322,616 16,527 5.12 328,351 17,916 5.46
Securities Sold Under
Agreements to Repurchase 52,773 3,119 5.91 41,741 1,926 4.61 34,788 1,762 5.06
Other Borrowed Funds 7,979 517 6.48 3,634 197 5.45 4,581 247 5.39
----- --- ---- ----- --- ---- ----- --- ----
Total Interest Bearing
Liabilities 745,975 32,536 4.36 719,187 27,184 3.78 698,484 29,147 4.17
------ ---- ------ ---- ------ ----
NONINTEREST BEARING
LIABILITIES
Commonwealth of Kentucky
Deposits 32,621 30,329 28,245
Other Demand Deposits 113,271 110,299 100,907
Other Liabilities 11,977 4,839 7,620
------ ----- -----
Total Liabilities 903,844 864,654 835,256
Shareholders' Equity 123,904 124,394 119,884
------- ------- -------
Total Liabilities and
Shareholders' Equity $1,027,748 $989,048 $955,140
========== ======== ========
Net Interest Income 44,833 43,988 42,490
TE Basis Adjustment (1,888) (2,138) (1,956)
------- ------- -------
Net Interest Income $42,945 $41,850 $40,534
======= ======= =======
Net Interest Spread 3.99% 4.16% 4.11%
Net Interest Margin 4.84% 4.91% 4.91%
1 Income and yield stated at a fully tax equivalent basis, using a 34% tax rate.
2 Loan balances include principal balances on nonaccrual loans.
3 Loan fees included in interest income amounted to $1.7 million, $1.8 million,
and $2.0 million in 2000, 1999, and 1998, respectively.
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 Attributed to Variance Variance Attributed to
(In thousands) 2000/1999 1 Volume Rate 1999/1998 1 Volume Rate
--------------- ------------- ------------------------ ------------- -------------------------
INTEREST INCOME
Taxable Investment Securities $41 $(1,050) $1,091 $593 $1,117 $(524)
Nontaxable Investment Securities 2 (532) (475) (57) 310 365 (55)
Time Deposits with Banks, Federal
Funds Sold and Securities
Purchased Under Agreements to
Resell 890 354 536 (1,496) (1,135) (361)
Loans 2 5,798 4,357 1,441 128 2,657 (2,529)
------- ------- ------- ------- ------- -------
Total Interest Income 6,197 3,186 3,011 (465) 3,004 (3,469)
INTEREST EXPENSE
Interest Bearing Demand Deposits 551 27 524 (366) 289 (655)
Savings Deposits 762 (144) 906 (322) 246 (568)
Time Deposits 2,526 795 1,731 (1,389) (304) (1,085)
Securities Sold Under Agreements to
Repurchase 1,193 578 615 163 330 (167)
Other Borrowed Funds 320 276 44 (49) (52) 3
------- ------- ------- ------- ------- -------
Total Interest Expense 5,352 1,532 3,820 (1,963) 509 (2,472)
------- ------- ------- ------- ------- -------
Net Interest Income $845 $1,654 $(809) $1,498 $2,495 $(997)
======= ======= ======= ======= ======= =======
Percentage Change 100.0% 195.7% (95.7%) 100.0% 166.6% (66.6%)
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.
NONINTEREST INCOME
Total noninterest income increased $160 thousand, or 1.3%, to $12.4 million for
2000. Service charges and fees on deposits, the largest component of noninterest
income, were relatively unchanged compared to the prior year. Other service
charges, commissions and fees increased $165 thousand, or 4.3%, mainly from
insurance commissions. Data processing income declined $66 thousand, or 4.8%.
Trust income increased $252 thousand, or 17.2%, primarily due to changing from
the cash method of accounting to an accrual method. Net gains on sales of
investment securities were $49 thousand in 1999, with none in 2000. Other
noninterest income decreased $151 thousand in 2000, primarily due to less gains
on the sale of fixed assets and less income from a low-income housing
partnership venture.
NONINTEREST EXPENSE
Total noninterest expense increased $600 thousand, or 1.8%, to $33.0 million for
the year. Salaries and employee benefits account for more than half of the total
noninterest expense and all of the increase in cost from 1999. During 2000,
salaries and benefits increased $784 thousand, or 4.5%, to $18.4 million. This
is a modest increase, given the nationwide as well as local issues with
containing employment costs while maintaining competent staff in this highly
competitive service oriented industry. This challenge is further compounded due
to low unemployment. Noncash compensation related to the Company's nonqualified
stock option plan was $967 thousand, a decrease of $102 thousand from 1999. As
of December 31, 2000, the Company had 456 full time equivalent employees, an
increase of 13 from the prior year end.
Efforts to control noninterest expenses were successful during 2000. Occupancy
expense increased $60 thousand, or 2.7%, compared to the prior year while
equipment expense decreased $94 thousand, or 3.1%. Other noninterest expense
decreased $208 thousand, or 2.4%, partially due to reductions in supply
expenses.
INCOME TAX
Income tax expense for 2000 was $5.5 million, an increase of $596 thousand, or
12.2%. The effective tax rate increased to 27.7% from 26.0% in 1999. The change
in the effective tax rate is primarily related to the level of tax-exempt
investment securities and tax-exempt loans in the Company's portfolio. During
2000, the growth in earning assets was predominately in taxable investments and
loans. The available tax-exempt alternatives were not sufficiently attractive to
warrant significant investment. Future investments will be made in tax-exempt
alternatives when the yield and credit quality is more attractive than those of
the available taxable opportunities.
FINANCIAL CONDITION
On December 31, 2000, assets were $1.2 billion, an increase of $165 million, or
15.9% from the prior year end. While core assets and liabilities did grow, $98
million of the increase in total assets is due to the relationship between the
Company's principal subsidiary, Farmers Bank & Capital Trust Co., and the
Commonwealth of Kentucky. Farmers Bank is the depository for the Commonwealth of
Kentucky. As such, large fluctuations in deposits are likely to occur on a daily
basis. Total assets averaged $1.0 billion for 2000, an increase of $39 million,
or 3.9%, from the prior year. Earning assets, primarily loans and investment
securities increased $30 million on average, or 3.4%, to $926 million.
LOANS
Loans, net of unearned income, totaled $683 million, an increase of $40 million,
or 6.2%, from 1999. Most of the increase was in real estate mortgage loans. Real
estate mortgage loans make up 62% of the total loans outstanding at December 31,
2000, and increased $35 million, or 8.9%, over a year ago. Real estate
construction loans increased $2.5 million, or 6.6%. Lease financing increased $2
million, or 5.8%. The outstandings for commercial, financial and agriculture
loans were relatively flat, compared to the prior year end, as was the
outstandings for installment loans.
The composition of the loan portfolio is summarized in the table below.
(In thousands)
Year Ended December 31, 2000 % 1999 % 1998 % 1997 % 1996 %
------------------------ ------ --- ------ --- ------ --- ------ --- ------ ---
Commercial, Financial, $105,248 15.4% $105,064 16.3% $116,625 19.3% $114,377 19.5% $120,256 21.5%
and Agriculture
Real Estate -
Construction 40,993 6.0 38,471 6.0 24,770 4.1 26,299 4.5 27,098 4.9
Real Estate - Mortgage 425,555 62.3 390,598 60.7 352,033 58.2 334,612 57.1 305,229 54.6
Installment 77,284 11.3 77,051 12.0 81,254 13.4 83,368 14.2 80,741 14.5
Lease Financing 34,269 5.0 32,379 5.0 30,155 5.0 27,284 4.7 24,925 4.5
--------- ------- --------- ------- --------- ------ --------- ------ --------- ------
Total $683,349 100.0% $643,563 100.0% $604,837 100.0% $585,940 100.0% $558,249 100.0%
========= ======= ========= ======= ========= ====== ========= ====== ========= ======
The following table presents commercial, financial, and agricultural loans and
real estate construction loans outstanding at December 31, 2000, which, based on
remaining scheduled repayments of principal, are due in the periods indicated.
LOAN MATURITIES
Within After One But After
(In thousands) One Year Within Five Years Five Years Total
-------------- ---------- ------------------- ------------ --------
Commercial, Financial, and Agricultural $66,104 $28,612 $10,532 $105,248
Real Estate - Construction 36,479 4,499 15 40,993
--------- --------- --------- ---------
Total $102,583 $33,111 $10,547 $146,241
========= ========= ========= =========
The table below presents commercial, financial, and agricultural loans and real
estate construction loans outstanding at December 31, 2000, 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 $21,707 $11,404
Due After Five Years 1,532 9,015
-------- ----------
Total $23,239 $20,419
======== ==========
ASSET QUALITY
The Company maintains policies and procedures to ensure that the granting of
credit is done in a sound and consistent manner. This includes policies on a
Company wide basis that require certain minimum standards to be maintained.
However, the policies also permit the individual subsidiary companies authority
to adopt standards that are no less stringent than those included in the company
wide policies. Credit decisions are made at the subsidiary bank level under the
guidelines established by policy. The Company's internal audit department
performs a loan review at each subsidiary bank during the year. This loan review
evaluates loan administration, credit quality, documentation, compliance with
Company loan standards, and the adequacy of the allowance for loan losses on a
consolidated and subsidiary basis.
The provision for loan losses represents charges made to earnings to maintain an
allowance for loan losses at an adequate level based on credit losses
specifically identified in the loan portfolio, as well as management's best
estimate of probable loan losses inherent in the remainder of the portfolio at
the balance sheet date. Many factors are considered when establishing an
adequate allowance. Those factors include, but are not limited to the following:
an assessment of the financial condition of individual borrowers, a
determination of the value and adequacy of underlying collateral, a review of
historical loss experience, the condition of the local economy, an analysis of
the levels and trends of the loan composition, and a review of delinquent and
classified loans. Actual losses could differ significantly from the amounts
estimated by management.
In addition, borrowers may experience difficulty in periods of economic
deterioration, and the level of nonperforming loans, charge offs, and
delinquencies could rise and require additional increases in the provision.
Also, regulatory agencies, as an integral part of their examinations,
periodically review the allowance for loan losses. These reviews could result in
additional adjustments to the provision based upon their judgments about
relevant information available during an examination.
The provision for loan losses decreased $391 thousand, or 13.7%, in 2000
compared to 1999. The Company had $1.9 million in net charge offs, down from
$2.3 million the year before. During 1999, $1.0 million of the net charge offs
was related to the deterioration of a single commercial loan credit. An
additional $230 thousand of the net charge offs in 2000 was attributed to that
single commercial loan credit. The allowance for loan losses was 1.50% of net
loans at year end 2000 and 1999. Management continues to emphasize collection
efforts and evaluation of risks within the portfolio. The composition of the
Company's loan portfolio continues to be diverse with no significant
concentration to any individual or industry.
The table below summarizes the loan loss experience for the past five years.
Year Ended December 31, (In thousands) 2000 1999 1998 1997 1996
-------------------------------------- ---- ---- ---- ---- ----
BALANCE OF ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF YEAR $9,659 $9,048 $9,114 $8,741 $8,472
Loans Charged Off:
Commercial, Financial, and Agricultural 1,336 1,590 716 720 1,609
Real Estate 369 79 386 465 920
Installment Loans to Individuals 857 1,209 1,061 1,133 1,862
Lease Financing 97 64 109 433 18
------ ------ ------ ------ ------
Total Loans Charged Off 2,659 2,942 2,272 2,751 4,409
Recoveries of Loans Previously Charged Off:
Commercial, Financial, and Agricultural 313 249 383 437 144
Real Estate 132 172 345 527 38
Installment Loans to Individuals 310 267 341 330 334
Lease Financing 22 2 3
----- ----- ----- ----- -----
Total Recoveries 777 690 1,072 1,294 516
----- ----- ----- ----- -----
Net Loans Charged Off 1,882 2,252 1,200 1,457 3,893
Additions to Allowance Charged to Expense 2,472 2,863 1,134 1,830 4,162
----- ----- ----- ----- -----
Balance at End of Year $10,249 $9,659 $9,048 $9,114 $8,741
======= ====== ====== ====== ======
Average Loans
Net of Unearned Income $667,241 $618,860 $589,714 $566,033 $546,040
Ratio of Net Charge Offs During Year to
Average Loans, Net of Unearned Income .28% .36% .20% .26% .71%
The following table presents an estimate of the allocation of the allowance for
loan losses by type for the date indicated. Although specific allocations exist,
the entire allowance is available to absorb losses in any particular category.
ALLOWANCE FOR LOAN LOSSES
Year Ended December 31, (In thousands) 2000 1999 1998 1997 1996
-------------------------------------- ---- ---- ---- ---- ----
Commercial, Financial, and Agricultural $4,050 $3,649 $2,536 $2,942 $3,806
Real Estate 3,835 3,807 4,637 4,324 2,974
Installment Loans to Individuals 1,861 1,829 1,450 1,417 1,304
Lease Financing 503 374 425 431 657
------- ------ ------ ------ ------
Total $10,249 $9,659 $9,048 $9,114 $8,741
======= ====== ====== ====== ======
NONPERFORMING ASSETS
Nonperforming assets for the Company include nonperforming loans, other real
estate owned, and other foreclosed assets. Nonperforming loans consist of
nonaccrual loans, loans past due ninety days or more on which interest is still
accruing, and restructured loans. Generally, the accrual of interest on loans is
discontinued when it is determined that the collection of interest or principal
is doubtful, or when a default of interest or principal has existed 90 days or
more, unless such loan is well secured and in the process of collection.
Total nonperforming assets decreased $373 thousand, or 6.5%, to $5.3 million at
year end 2000. The decrease is primarily due to a $363 thousand reduction in
loans past due 90 days or more. Nonperforming loans represent 0.67% of net loans
at year end 2000, down from 0.76% for 1999. Information pertaining to
nonperforming loans and assets is presented in the table below.
Year Ended December 31, (In thousands) 2000 1999 1998 1997 1996
-------------------------------------- ---- ---- ---- ---- ----
Loans Accounted for on Nonaccrual Basis $2,852 $2,767 $1,286 $3,137 $2,938
Loans Past Due 90 Days or More 1,739 2,102 1,645 2,196 1,822
Restructured Loans 1,285 1,814
------ ------ ------ ------ ------
Total Nonperforming Loans 4,591 4,869 2,931 6,618 6,574
Other Real Estate Owned 598 734 1,671 29
Other Foreclosed Assets 136 95 69 47
------ ------ ------ ------ ------
Total Nonperforming Assets $5,325 $5,698 $4,671 $6,647 $6,621
====== ====== ====== ====== ======
TEMPORARY INVESTMENTS
Federal funds sold and securities purchased under agreements to resell are the
primary components of temporary investments. The Company uses these funds in the
management of liquidity and interest rate sensitivity. In 2000, temporary
investments averaged $38 million, an increase of $7 million, or 21.7%. Temporary
investments are reallocated as loan demand and other investment alternatives
present the opportunity.
INVESTMENT SECURITIES
The majority of the investment securities portfolio is comprised of U.S.
Government agency securities, mortgage-backed securities and tax-exempt
securities of states and political subdivisions. Total investment securities
were $261 million on December 31, 2000, an increase of $31 million, or 13.5%,
from year end 1999.
The funds made available from maturing or called bonds have been redirected,
primarily to fund new loan growth and to purchase Company stock, as needed. The
purchase of nontaxable obligations of states and political subdivisions is 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.
Investment securities averaged $221 million in total for the year, a decrease of
$25 million, or 10.1%. The majority of the purchases during 2000 were U.S.
Government agencies that were classified as available for sale. On December 31,
2000, available for sale securities made up 81% of the total investment
securities, as apposed to 73% a year earlier. U.S. Government agencies made up
53% of the total available for sale securities and 43% of the total portfolio at
year end. A year ago, U.S. Government securities made up 45% of the total
available for sale securities, and 34% of the total portfolio.
The Company realized $49 thousand in net gains on the sale of available for sale
securities during 1999, and none in 2000. The net unrealized gain on available
for sale securities included as a component of shareholders' equity, was $557
thousand, compared to a unrealized loss of $1.9 million at the end of 1999.
The following table summarizes the carrying values of investment securities on
December 31, 2000, 1999, and 1998. 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, 2000 1999 1998
Available Held to Available Held to Available Held to
(In thousands) for Sale Maturity for Sale Maturity for Sale Maturity
-------------- -------- -------- -------- -------- -------- --------
U.S. Treasury Securities $1,250 $3,748 $22,379
Obligations of U.S.
Government Agencies 113,033 $100 75,997 $2,600 86,998 $2,600
Obligations of States and
Political Subdivisions 22,804 48,895 21,152 58,562 17,807 65,891
Mortgage-backed Securities 52,941 395 50,889 734 45,520 2,878
Corporate Debt 13,904 11,969 14,915
Equity Securities 7,487 4,189 3,868
-------- ------- -------- ------- -------- -------
Total $211,419 $49,390 $167,944 $61,896 $191,487 $71,369
======== ======= ======== ======= ======== =======
The following table presents an analysis of the contractual maturity
distribution and tax equivalent weighted average interest rates of investment
securities at December 31, 2000. For purposes of this analysis, available for
sale securities are stated at fair value and held to maturity securities are
stated at amortized cost. Equity securities in the available for sale portfolio
consist primarily of Federal Home Loan Bank stock and investments in unrelated
financial institution stocks, which have no stated maturity and are not included
in the maturity schedule that follows.
AVAILABLE FOR SALE
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
-------------- ------ ---- ------ ---- ------ ---- ------ ----
U.S. Treasury Securities $1,250 5.4%
Obligations of U.S.
Government Agencies 63,881 6.3 $38,924 6.2% $7,754 6.1% $2,474 5.6%
Obligations of States and
Political Subdivisions 1,044 5.7 4,935 6.3 14,834 6.6 1,991 7.3
Mortgage-backed Securities 2,167 6.5 43,351 6.6 7,424 6.3
Corporate Debt 5,461 6.1 7,362 6.2 1,080 5.8
------- ---- ------- ---- ------- ---- ------- ----
Total $71,636 6.3% $53,388 6.2% $65,939 6.5% $12,969 6.3%
======= ==== ======= ==== ======= ==== ======= ====
HELD TO MATURITY
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
-------------- ------ ---- ------ ---- ------ ---- ------ ----
Obligations of U.S.
Government Agencies $100 6.0%
Obligations of States and
Political Subdivisions $11,172 6.6% 21,116 6.9 $16,332 7.2% $275 7.2%
Mortgage-backed Securities 2 6.5 393 7.2
------- ---- ------- ---- ------- ---- ---- ----
Total $11,172 6.6% $21,218 6.9% $16,725 7.2% $275 7.2%
======= ==== ======= ==== ======= ==== ==== ====
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 states and political subdivisions are computed on a tax
equivalent basis using a 34% tax rate.
DEPOSITS
The Company's primary source of funding for its lending and investment
activities result from its customer deposits, which consist of noninterest and
interest bearing demand, savings and time deposits. On December 31, 2000,
deposits totaled $969 million, an increase of $107 million, or 12.4%, from year
end 1999. A significant deposit received from the Commonwealth of Kentucky at
year end 2000 contributed to the increase in deposits. Deposits averaged $831
million in 2000, an increase of $17 million, or 2.0%.
During 2000, total average interest bearing deposits increased $11 million, or
1.7%, to $685 million, while average noninterest bearing deposits increased $5
million, or 3.7%, to $146 million.
A summary of average balances and rates paid on deposits follows.
2000 1999 1998
Average Average Average Average Average Average
(In thousands) Balance Rate Balance Rate Balance Rate
-------------- -------- ---- -------- ---- -------- ----
Noninterest Bearing Demand $145,892 0.00% $140,628 0.00% $129,152 0.00%
Interest Bearing Demand 193,982 2.33 192,695 2.06 180,265 2.41
Savings 153,574 3.46 158,501 2.88 150,499 3.24
Time 337,667 5.64 322,616 5.12 328,351 5.46
-------- ---- -------- ---- -------- ----
Total $831,115 3.47% $814,440 3.08% $788,267 3.44%
======== ==== ======== ==== ======== ====
Maturities of time deposits of $100,000 or more outstanding at December 31, 2000
are summarized as follows.
(In thousands) Amount
-------------- -------
3 Months or Less $19,090
Over 3 through 6 Months 14,344
Over 6 through 12 Months 12,717
Over 12 Months 27,464
-------
Total $73,615
=======
SHORT-TERM BORROWINGS
Short-term borrowings primarily consist of securities sold under agreements to
repurchase with year end balances of $90 million, $41 million and $26 million in
2000, 1999 and 1998, respectively. Such borrowings are generally on an overnight
basis. Other short-term borrowings primarily consist of demand notes issued to
the U.S. Treasury under the treasury tax and loan note option account. A summary
of short-term borrowings is as follows.
(In thousands) 2000 1999 1998
-------------- ---- ---- ----
Amount Outstanding at Year End $91,181 $41,971 $26,784
Maximum Outstanding at any Month End 91,181 101,359 51,095
Average Outstanding 53,315 42,442 35,807
Weighted Average Rate During the Year 5.91% 4.61% 5.05%
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.
MARKET RISK MANAGEMENT
Market risk is the risk of loss arising from adverse changes in market prices
and rates. The Company's market risk is comprised primarily of interest rate
risk created by its core banking activities of extending loans and receiving
deposits. The Company's success is largely dependent upon its ability to manage
this risk. Interest rate risk is defined as the exposure of the Company's net
interest income to adverse movements in interest rates. Although the Company
manages other risks, such as credit and liquidity risk, management considers
interest rate risk to be its most significant risk, which could potentially have
the largest and a material effect on the Company's financial condition and
results of operations. A sudden and substantial change in interest rates may
adversely impact the Company's earnings to the extent that the interest rates
earned on assets and paid on liabilities do not change at the same speed, to the
same extent, or on the same basis. Other events that could have an adverse
impact on the Company's performance include changes in general economic and
financial conditions, general movements in market interest rates, and changes in
consumer preferences. The Company's primary purpose in managing interest rate
risk is to effectively invest the Company's capital and to manage and preserve
the value created by its core banking business.
The Company has established a Corporate Asset and Liability Management Committee
(ALCO) to provide guidance and support to each of the ALCO's of the subsidiary
banks. ALCO is also responsible for monitoring risks on a Company wide basis.
ALCO has established minimum standards in its asset and liability management
policy that each subsidiary bank must adopt. However, the subsidiary banks are
permitted to deviate from these standards so long as the deviation is no less
stringent that that of the Corporate policy.
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates. For each balance sheet item
listed below, the table presents principal cash flows and related weighted
average interest rates by contractual maturity dates.
Principal Cash Flows and Related Weighted Average Interest Rates
Fair
December 31, (Dollars in thousands) 2001 2002 2003 2004 2005 Thereafter Total Value
----------------------------------- ---- ---- ---- ---- ---- ---------- ----- -----
RATE SENSITIVE ASSETS
Interest Bearing Due From Banks $1,912 $1,912 $1,912
Average Interest Rate 6.32% 6.32%
Federal Funds Sold and Securities
Purchased Under Agreements to
Resell 65,925 65,925 65,925
Average Interest Rate 6.48 6.48
Investment in Debt Securities
Fixed Rate $82,794 $27,215 $13,834 $14,020 $18,772 $89,172 $245,807 $246,430
Average Interest Rate 5.99% 5.85% 5.29% 5.58% 5.64% 5.76% 5.79%
Variable Rate 15,002 15,002 15,002
Average Interest Rate 5.58 5.58
Loans, Net
Fixed Rate $191,473 $61,442 $62,072 $39,988 $21,075 $21,903 $397,953 $395,529
Average Interest Rate 9.36% 8.91% 8.86% 8.36% 8.91% 8.32% 9.03%
Variable Rate 214,903 26,750 21,134 11,311 11,043 255 285,396 285,396
Average Interest Rate 9.60 8.39 8.52 8.19 8.39 10.89 9.30
RATE SENSITIVE LIABILITIES
Noninterest Bearing Checking $231,483 $231,483 $281,483
Savings and Interest Bearing
Checking 374,849 374,849 374,849
Average Interest Rate 2.23% 2.23%
Time Deposits 207,352 $88,872 $56,285 $4,807 $4,221 $1,328 362,865 362,865
Average Interest Rate 5.95 6.22% 6.52% 5.80% 6.32% 5.84% 6.10
Fixed Interest Rate Borrowings 10,887 2,175 525 197 197 551 14,532 14,543
Average Interest Rate 6.61 6.57 6.73 7.02 7.02 7.02 6.64
Variable Interest Rate Borrowings 87,150 87,150 87,150
Average Interest Rate 5.40 5.40
LIQUIDITY
The liquidity of the Parent Company is primarily affected by the receipt of
dividends from its subsidiary banks (see footnote 16 in the notes to the
consolidated financial statements) and cash balances maintained. Management
expects that in the aggregate, its subsidiary banks will continue to have the
ability to dividend adequate funds to the Parent 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 that can be used for liquidity purposes. Those sources of funds include
the subsidiary banks' core deposits, consisting of both business and nonbusiness
deposits; cash flow generated by repayment of loan principal and interest; and
federal funds purchased and securities sold under agreements to repurchase.
For the longer term, the liquidity position is managed by balancing the maturity
structure of the balance sheet. This process allows for an orderly flow of funds
over an extended period of time.
Liquid assets consist of cash and cash equivalents and available for sale
investment securities. At December 31, 2000, liquid assets totaled $441 million.
For the year ended December 31, 2000, cash and due from banks totaled $162
million, up nearly 100% from the prior year end. This increase is primarily the
result of a significant cash deposit received from the Commonwealth of Kentucky.
Net cash provided by operating activities was $19.6 million in 2000, a decrease
of $3.9 million from the prior year. Most of the decrease came from a $2.3
million reduction in the proceeds from the sale of mortgage loans. Net cash used
in investing activities increased $54.4 million mainly due to increased
purchases of investment securities which utilized $46.2 million more than the
proceeds provided from maturities and calls of investment securities. Net cash
provided by financing activities totaled $145.5 million for the year 2000, up
$109 million over 1999. This increase is primarily the result of an increase in
deposits of $74.8 million and an increase in securities sold under agreements to
repurchase $33.9 million.
CAPITAL RESOURCES
Shareholders' equity was $125.5 million on December 31, 2000, increasing $355
thousand, or less than 1% from year end 1999. During 2000, the Company purchased
278,000 shares of its outstanding common stock for a total cost of $9.3 million.
Favorable results of the share buy back program are reflected in the growth in
earnings per share, out pacing the growth in net income, and in the improvement
in the return on equity. The Company issued 12,000 shares of common stock
pursuant to its nonqualified employee stock option plan.
Dividends of $8.5 million, or $1.17 per share, were declared during the year.
The dividend declared increased 3.5% on a per share basis. Accumulated other
comprehensive income, consisting of the unrealized holding gain on available for
sale securities (net of tax), improved $2.5 million over the prior year.
Consistent with the objective of operating a sound financial organization, the
Company's goal is to maintain capital ratios well above the regulatory minimum
requirements. The Company's capital ratios as of December 31, 2000, the
regulatory minimums, and the regulatory standard for a well capitalized
institution are as follows.
Farmers Capital Regulatory Well
Bank Corporation Minimum Capitalized
---------------- --------- -----------
Tier 1 Risk Based 16.66% 4.00% 6.00%
Total Risk Based 17.93 8.00 10.00
Leverage 12.13 4.00 5.00
The capital ratios of each subsidiary bank were in excess of the applicable
minimum regulatory capital ratio requirements at December 31, 2000.
The table below is an analysis of dividend payout ratios and equity to asset
ratios for the previous five years.
December 31, 2000 1999 1998 1997 1996
------------ ---- ---- ---- ---- ----
Percentage of Dividends Declared
to Net Income 59.33% 60.66% 53.02% 45.90% 45.21%
Percentage of Average Shareholders'
Equity to Average Total Assets 12.06 12.58 12.55 12.46 11.94
SHARE BUY BACK PROGRAM
On July 25, 2000, the Company announced that it intends to purchase up to
500,000 shares of its outstanding common stock. This is in addition to the stock
purchase plan announced on November 9, 1998 to purchase 400,000 shares. The
purchases will be dependant on market conditions and there is no guarantee as to
the exact number of shares to be purchased by the Company. Shares would be used
for general corporate purposes. Consistent with the objective of maximizing
shareholder value, the Company considers the purchase of its outstanding shares
in a given price range to be a good investment of the Company's available funds.
As of December 31, 2000, 486,162 additional shares could be purchased under the
existing program.
SHAREHOLDER INFORMATION
As of January 1, 2001, there were 843 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 lists the stock prices and dividends declared for 2000 and 1999.
STOCK PRICES
High Low Dividends Declared
---- --- ------------------
2000
Fourth Quarter $37.500 $27.000 $0.30
Third Quarter 37.500 29.250 0.29
Second Quarter 34.000 28.500 0.29
First Quarter 34.000 27.250 0.29
1999
Fourth Quarter $36.000 $30.000 $0.29
Third Quarter 43.500 34.500 0.28
Second Quarter 36.625 32.125 0.28
First Quarter 39.375 30.875 0.28
Dividends declared per share increased $0.04 or 3.5%, and $0.13 or 13.0%, for
the years 2000 and 1999, respectively.
EFFECT OF IMPLEMENTING RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, which delays the effective date of SFAS 133 until January 1,
2001; however, early adoption is permitted. In June 2000, the FASB issued SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, which provides guidance with respect to certain implementation
issues related to SFAS No. 133. Upon adoption, the provisions of SFAS No. 133
must be applied prospectively. The Company will adopt SFAS No. 133 on January 1,
2001. Because the Company currently has no derivative instruments or hedging
activities, the Company believes the effect of adoption will not have a material
impact on the consolidated financial statements. Any derivative instruments
acquired, or hedging activities entered into, will be recorded in the financial
statements as required by SFAS No. 133 and SFAS No. 138.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, which replaces
SFAS No. 125. This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales, from transfers that are secured
borrowings. The standards are based on the consistent application of the
financial components approach, where upon after a transfer, an entity recognizes
the financial and servicing assets it controls and the liabilities it has
incurred, and derecognizes financial liabilities when extinguished.
This Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. This Statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000.
A transfer of financial assets in which the transferor surrenders control is
accounted for as a sale to the extent that consideration other than beneficial
interests in the transferred assets is received in exchange. This Statement
requires that liabilities and derivatives transferred be initially measured at
fair value, if practicable. Servicing assets and other retained interest in the
transferred assets are to be measured by allocating the previous carrying amount
between the assets and retained interest sold, if any, based on their relative
fair values on the date of the transfer.
This Statement requires that servicing assets and liabilities be subsequently
measured by amortization in proportion to and over the period of estimated net
servicing income or loss, and assessment for asset impairment or increased
obligation based on their fair values.
This Statement requires that a liability be derecognized if the debtor pays the
creditor and is relieved of its obligation for the liability, or the debtor is
legally released from being the primary obligor under the liability either
judicially or by the creditor.
The Company does not expect the implementation of this Statement to have a
material effect on the consolidated financial statements.
1999 COMPARED WITH 1998
Net income was $13.9 million in 1999 compared to $14.2 million in 1998, a
decrease of $317 thousand, or 2.2%. Diluted net income per share decreased 1.6%,
from $1.89 to $1.86 in 1999. The decrease in net income was primarily attributed
to the $1.7 million increase in the provision for loan losses. A significant
portion of that increase was related to the deterioration of a single commercial
loan credit. The Company purchased 91 thousand shares of its own common stock
under a share buy back program in 1999. The return on average assets was 1.41%
in 1999 and the return on average equity was 11.20%, compared to 1.49% and
11.88%, respectively, for 1998.
Total interest income on a tax equivalent basis was $71.2 million, a decrease of
$465 thousand, or less than 1%, from 1998. A $31 million increase in the average
balance of earning assets nearly offset the 34 basis point decrease in the
overall average rate earned on earning assets.
Total interest expense was $27.2 million, a decrease of $2.0 million, or 6.7%,
from 1998. The average rate paid on interest bearing liabilities decreased 39
basis points from 1998 and more than compensated for the $21 million, or 3%
decrease in the average balance.
The spread between rates earned and paid was 4.16% in 1999, a 5 basis point
increase from 1998. This increase was the result of a 34 basis point decrease in
the average rate earned on earning assets, and a decrease of 39 basis points in
the average rate paid on interest bearing liabilities. The net interest margin
was 4.91%, unchanged from the prior year.
Noninterest income increased $325 thousand, or 2.7%, to $12.3 million for 1999.
Other service charges, commissions and fees increased $347 thousand, or 9.9%,
and trust income increased $106, or 7.8%. These increases were partially offset
by a $114 thousand, or 7.6%, decrease in data processing fees and $53 thousand
additional losses on the sale of loans.
Noninterest expense was $32.4 million for 1999, an increase of $613 thousand, or
1.9% from 1998. Salaries and employee benefits decreased $225 thousand, or 1.3%.
This was more than offset by increases in occupancy expense of $127 thousand, or
6.1%, equipment expense of $148, or 5.2%, and other noninterest expenses of $467
thousand.
Income tax expense for 1999 was $4.9 million, a decrease of $384 thousand, or
7.3%, from 1998. The effective tax rates were 26.0% and 27.1% for the years
ended 1999 and 1998 respectively. The reduction in the effective tax rate for
1999 was primarily due to an increase in tax-exempt income and the realization
of investment tax credits through the participation in low-income housing
projects.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Farmers Capital Bank Corporation has the responsibility for
preparing the accompanying consolidated financial statements and for their
integrity and objectivity. The statements were prepared in accordance with
accounting principles generally accepted in the United States of America. The
consolidated financial statements include amounts that are based on management's
best estimates and judgments. Management also prepared other information in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
Farmers Capital Bank Corporation's 2000 consolidated financial statements have
been audited by KPMG LLP independent accountants. Management has made available
to KPMG LLP all financial records and related data, as well as the minutes of
Boards of Directors meetings. Management believes that all representations made
to KPMG LLP during the audit were valid and appropriate.
Management of Farmers Capital Bank Corporation has established and maintains a
system of internal control that provides reasonable assurance as to the
integrity and reliability of the financial statements, the protection of assets
from unauthorized use or disposition, and the prevention and detection of
fraudulent financial reporting. The system of internal control provides for
appropriate division of responsibility and is documented by written policies and
procedures that are communicated to employees with significant roles in the
financial reporting process and updated as necessary. Management continually
monitors the system of internal control for compliance.
Farmers Capital Bank Corporation maintains an internal auditing program that
independently assesses the effectiveness of the internal controls and recommends
possible improvements thereto. Management has considered the recommendations of
the internal audit staff and KPMG LLP and has taken actions that we believe
respond appropriately to these recommendations. Management believes that, as of
December 31, 2000, the system of internal control was adequate to accomplish the
objectives discussed herein.
/s/ Charles S. Boyd /s/ C. Douglas Carpenter
------------------- ------------------------
Charles S. Boyd C. Douglas Carpenter
President and CEO Vice President and CFO
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Farmers Capital Bank Corporation
We have audited the accompanying consolidated balance sheets of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farmers Capital Bank
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Louisville, Kentucky
January 16, 2001
CONSOLIDATED BALANCE SHEETS
December 31, (In thousands, except share data) 2000 1999
---------------------------------------------- ---- ----
ASSETS
Cash and Cash Equivalents:
Cash and Due From Banks $162,034 $82,862
Interest Bearing Deposits in Other Banks 1,912 11,594
Federal Funds Sold and Securities Purchased Under Agreements to Resell 65,925 40,904
------- -------
Total Cash and Cash Equivalents 229,871 135,360
Investment Securities:
Available for Sale, Amortized Cost of $210,575 (2000) and $170,885 (1999) 211,419 167,944
Held to Maturity, Fair Value of $50,013 (2000) and $61,636 (1999) 49,390 61,896
------- -------
Total Investment Securities 260,809 229,840
Loans, Net of Unearned Income 683,349 643,563
Allowance for Loan Losses (10,249) (9,659)
------- -------
Loans, Net 673,100 633,904
Premises and Equipment, Net 24,916 24,409
Other Assets 16,056 16,274
---------- ----------
Total Assets $1,204,752 $1,039,787
========== ==========
LIABILITIES
Deposits:
Noninterest Bearing $231,483 $176,315
Interest Bearing 737,714 685,905
------- -------
Total Deposits 969,197 862,220
Securities Sold Under Agreements to Repurchase 90,004 41,200
Other Borrowed Funds 11,678 4,439
Dividends Payable 2,155 2,162
Other Liabilities 6,257 4,660
--------- -------
Total Liabilities 1,079,291 914,681
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common Stock, Par Value $.125 Per Share; 9,608,000 Shares Authorized; 8,031,552
and 8,019,378 Shares Issued at December 31, 2000 and 1999, respectively 1,004 1,002
Capital Surplus 13,634 12,370
Retained Earnings 131,021 125,173
Treasury stock, at cost, 859,898 and 581,586 shares at December 31, 2000 and
1999, respectively (20,755) (11,498)
Accumulated Other Comprehensive Income (Loss) 557 (1,941)
------- -------
Total Shareholders' Equity 125,461 125,106
---------- ----------
Total Liabilities and Shareholders' Equity $1,204,752 $1,039,787
========== ==========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Years Ended December 31, 2000 1999 1998
------------------------------------- ---- ---- ----
INTEREST INCOME
Interest and Fees on Loans $60,458 $54,616 $54,556
Interest on Investment Securities:
Taxable 9,232 9,191 8,598
Nontaxable 3,455 3,781 3,585
Interest on Deposits in Other Banks 68 79 154
Interest on Federal Funds Sold and Securities Purchased
Under Agreements to Resell 2,268 1,367 2,788
------ ------ ------
Total Interest Income 75,481 69,034 69,681
INTEREST EXPENSE
Interest on Deposits 28,900 25,061 27,138
Interest on Securities Sold Under Agreements to
Repurchase 3,119 1,926 1,762
Interest on Other Borrowed Funds 517 197 247
------ ------ ------
Total Interest Expense 32,536 27,184 29,147
------ ------ ------
Net Interest Income 42,945 41,850 40,534
Provision for Loan Losses 2,472 2,863 1,134
------ ------ ------
Net Interest Income After Provision for Loan Losses 40,473 38,987 39,400
NONINTEREST INCOME
Service Charges and Fees on Deposits 5,229 5,220 5,154
Other Service Charges, Commissions, and Fees 4,009 3,844 3,497
Data Processing Income 1,314 1,380 1,494
Trust Income 1,718 1,466 1,360
Investment Securities Gains, Net 49 60
Other 173 324 393
------ ------ ------
Total Noninterest Income 12,443 12,283 11,958
NONINTEREST EXPENSE
Salaries and Employee Benefits 18,372 17,588 17,813
Occupancy Expenses, Net 2,267 2,207 2,080
Equipment Expenses 2,899 2,993 2,845
Bank Franchise Tax 1,159 1,101 1,005
Other 8,340 8,548 8,081
------ ------ ------
Total Noninterest Expense 33,037 32,437 31,824
------ ------ ------
Income Before Income Taxes 19,879 18,833 19,534
Income Tax Expense 5,499 4,903 5,287
------- ------- -------
Net Income $14,380 $13,930 $14,247
======= ======= =======
NET INCOME PER COMMON SHARE
Basic and Diluted $1.97 $1.86 $1.89
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 7,304 7,478 7,555
Diluted 7,307 7,478 7,555
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the Years Ended December 31, 2000 1999 1998
-------------------------------- ---- ---- ----
NET INCOME $14,380 $13,930 $14,247
Other Comprehensive Income (Loss):
Unrealized Holding Gain (Loss) on Available For Sale
Securities Arising During the Period, Net of Tax of
$1,287, ($1,153), and $172, Respectively 2,498 (2,239) 334
Reclassification Adjustment for Prior Period Unrealized
Gain Recognized During Current Period, Net of Tax of
$37 and $33 in 1999 and 1998 (71) (65)
------- ------- -------
Other Comprehensive Income (Loss) 2,498 (2,310) 269
------- ------- -------
Comprehensive Income $16,878 $11,620 $14,516
======= ======= =======
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
(In thousands, except per share data) Other Total
For the Years Ended Common Stock Capital Retained Treasury Stock Comprehensive Shareholders'
December 31, 2000, 1999, and 1998 Shares Amount Surplus Earnings Shares Amount Income (Loss) Equity
------------------------------------- ------ ------ ------- -------- ------ ------ ------------- -------------
Balance at January 1, 1998 8,001 $1,000 $9,409 $112,999 438 $(6,465) $100 $117,043
Net Income 14,247 14,247
Other Comprehensive Income 269 269
Cash Dividends Declared, $1.00 Per
Share (7,554) (7,554)
Purchase of Common Stock 53 (1,856) (1,856)
Stock Options Exercised 11 1 275 276
Noncash Compensation Expense
Attributed to Stock Option Grants 1,413 1,413
----- ----- ------ ------- --- ----- --- -------
Balance at December 31, 1998 8,012 1,001 11,097 119,692 491 (8,321) 369 123,838
Net Income 13,930 13,930
Other Comprehensive Loss (2,310) (2,310)
Cash Dividends Declared, $1.13 Per
Share (8,449) (8,449)
Purchase of Common Stock 91 (3,177) (3,177)
Stock Options Exercised 8 1 204 205
Noncash Compensation Expense
Attributed to Stock Option Grants 1,069 1,069
----- ----- ------ ------- --- ------ ----- -------
Balance at December 31, 1999 8,020 1,002 12,370 125,173 582 (11,498) (1,941) 125,106
Net Income 14,380 14,380
Other Comprehensive Income 2,498 2,498
Cash Dividends Declared, $1.17 Per
Share (8,532) (8,532)
Purchase of Common Stock 278 (9,257) (9,257)
Stock Options Exercised 12 2 297 299
Noncash Compensation Expense
Attributed to Stock Option Grants 967 967
----- ------ ------- -------- --- -------- ---- --------
Balance at December 31, 2000 8,032 $1,004 $13,634 $131,021 860 $(20,755) $557 $125,461
===== ====== ======= ======== === ======== ==== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (In thousands) 2000 1999 1998
----------------------------------------------- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $14,380 $13,930 $14,247
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 2,784 2,951 2,757
Net Amortization of Investment Security
Premiums and Discounts:
Available for Sale (1,014) (196) (135)
Held to Maturity (7) 25 68
Provision for Loan Losses 2,472 2,863 1,134
Noncash Compensation Expense 967 1,069 1,413
Mortgage Loans Originated for Sale (10,738) (10,016) (18,351)
Proceeds from Sale of Mortgage Loans 10,761 13,030 15,104
Deferred Income Tax Benefit (161) (324) (131)
(Gain) Loss on Sale of Mortgage Loans (50) 46 (7)
(Gain) Loss on Sale of Premises and Equipment (5) (83) 11
Gain on Sale of Available for Sale Investment
Securities, Net (49) (60)
(Increase) Decrease in Accrued Interest
Receivable (738) (130) (405)
(Increase) Decrease in Other Assets (360) 1,154 (2,853)
Increase (Decrease) in Accrued Interest Payable 752 (173) 29
Increase (Decrease) in Other Liabilities 541 (610) (177)
------ ------ ------
Net Cash Provided by Operating Activities 19,584 23,487 12,644
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities and Calls of Investment
Securities:
Available for Sale 311,677 162,755 135,899
Held to Maturity 12,513 9,448 30,899
Proceeds from Sale of Available for Sale Investment
Securities 19,989 13,396 25,673
Purchases of Investment Securities:
Available for Sale (370,342) (155,863) (233,379)
Held to Maturity (6,650)
Loans Originated for Investment, Net of Principal
Collected (41,642) (44,037) (16,843)
Purchases of Premises and Equipment (2,821) (2,257) (5,911)
Proceeds from Sale of Equipment 30 362 22
------ ------ ------
Net Cash Used in Investing Activities (70,596) (16,196) (70,290)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits 106,977 32,219 (4,975)
Net Increase (Decrease) in Other Borrowed Funds 7,239 513 (1,464)
Net Increase (Decrease) of Securities Sold Under
Agreements to Repurchase 48,804 14,876 (21,941)
Dividends Paid (8,539) (8,401) (7,256)
Purchase of Common Stock (9,257) (3,177) (1,856)
Stock Options Exercised 299 205 232
------- ------ ------
Net Cash Provided By (Used In) Financing Activities 145,523 36,235 (37,260)
------- ------ ------
Net Increase (Decrease) in Cash and Cash Equivalents 94,511 43,526 (94,906)
Cash and Cash Equivalents at Beginning of Year 135,360 91,834 186,740
-------- -------- -------
Cash and Cash Equivalents at End of Year $229,871 $135,360 $91,834
======== ======== =======
Supplemental Disclosures
Cash Paid During the Year For:
Interest $31,784 $27,357 $29,118
Income Taxes 5,450 6,025 5,185
Cash Dividend Declared and Unpaid 2,155 2,162 2,113
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Farmers Capital Bank Corporation and
Subsidiaries conform to accounting principles generally accepted in the United
States of America 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 financial holding company, and
its subsidiaries, including its principal subsidiary, Farmers Bank &
Capital Trust Co. All intercompany transactions and accounts have been
eliminated in consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 2000
presentation. These reclassifications do not affect net income or total
shareholders' equity as previously reported.
SEGMENT INFORMATION
The Company provides a broad range of financial services to individuals,
corporations, and others through its 23 banking locations throughout
Central Kentucky. These services primarily include the activities of
lending and leasing, receiving deposits, providing cash management
services, safe deposit box rental, and trust activities. Operations are
managed and financial performance is evaluated at the subsidiary level. The
Company's chief decision makers monitor the results of the various banking
products and services of its subsidiaries. Accordingly, all of the
Company's operations are considered by management to be aggregated in one
reportable operating segment.
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
Investments in debt and equity securities are classified into three
categories. Securities that management has the 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 of income taxes in other
comprehensive income 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 AND INTEREST INCOME
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, except interest on some consumer
installment loans which is recognized on the sum-of-the-months digits
method, and does not differ materially from the interest method. Fees and
incremental direct costs associated with loan origination are deferred and
amortized as yield adjustments over the respective loan terms. Generally,
the accrual of interest on loans is discontinued when it is determined that
the collection of interest or principal is doubtful, or when a default of
interest or principal has existed for 90 days or more, unless such loan is
well secured and in the process of collection. Cash payments received on
nonaccrual loans generally are applied to principal, and interest income is
only recorded once principal recovery is assured.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors
for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition. SFAS No. 114, as
amended, requires that impaired loans be measured at the present value of
expected future cash flows, discounted at the loan's effective interest
rate, at the loan's observable market price, or at the fair value of the
collateral if the loan is collateral dependent. Generally, impaired loans
are also in nonaccrual status. In certain circumstances, however, the
Company may continue to accrue interest on an impaired loan. Cash receipts
on impaired loans are applied to the recorded investment in the loan,
including any accrued interest receivable. Loans which are part of a large
group of smaller-balance homogeneous loans, such as residential mortgage
and consumer loans, are collectively evaluated for impairment.
LOANS HELD FOR SALE
The Company's operations include a limited amount of mortgage banking.
Mortgage banking activities include the origination of residential mortgage
loans for sale to various investors. Mortgage loans originated and intended
for sale in the secondary market, principally under programs with the
Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, are carried at the lower of cost or market value and included
in net loans on the balance sheet. There were none of these loans at
December 31, 2000. Mortgage banking revenues, including origination fees,
servicing fees, net gains or losses on sales of mortgages, and other fee
income amount to less than 1% of the Company's total revenue for the years
ended December 31, 2000, 1999, and 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings to
maintain an allowance for loan losses at an adequate level based on credit
losses specifically identified in the loan portfolio, as well as
management's best estimate of probable loan losses inherent in the
remainder of the portfolio at the balance sheet date. Many factors are
considered when establishing an adequate allowance. Those factors include,
but are not limited to the following: an assessment of the financial
condition of individual borrowers, a determination of the value and
adequacy of underlying collateral, a review of historical loss experience,
the condition of the local economy, an analysis of the levels and trends of
the loan composition, and a review of delinquent and classified loans.
Actual losses could differ significantly from the amounts estimated by
management.
OTHER REAL ESTATE
Other real estate owned and held for sale included with other assets in 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 comparable sales.
INCOME TAXES
Deferred income tax assets and liabilities result from temporary
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
years in which those temporary differences are expected to be recovered or
settled. As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through income tax expense.
PREMISES AND EQUIPMENT
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.
NET INCOME PER COMMON SHARE
Basic net income per common share is determined by dividing net income by
the weighted average number of shares of common stock outstanding. Diluted
net income per common share is determined by dividing net income by the
weighted average number of shares of common stock outstanding plus the
weighted average number of shares that would be issued upon exercise of
dilutive stock options assuming proceeds are used to repurchase shares
pursuant to the treasury stock method.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. Comprehensive income is
defined as the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. For the Company, this includes net income and net
unrealized gains and losses on available for sale investment securities.
This Statement requires only additional disclosures in the consolidated
financial statements; it does not affect the Company's financial position
or results of operations.
TREASURY STOCK
The purchase of the Company's common stock is recorded at cost.
2. INVESTMENT SECURITIES
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 2000. The summary is divided into available
for sale and held to maturity securities.
Amortized Gross Gross Estimated
December 31, 2000 (In thousands) Cost Unrealized Gains Unrealized Losses Fair Value
-------------------------------- ------ ---------------- ----------------- ----------
AVAILABLE FOR SALE
U.S. Treasury Securities $1,251 $1 $1,250
Obligations of U.S. Government Agencies 113,028 $67 62 113,033
Obligations of States and Political
Subdivisions 22,692 151 39 22,804
Mortgage-Backed Securities 52,597 380 36 52,941
Corporate Debt 13,954 33 83 13,904
Equity Securities 7,053 434 7,487
-------- ------ ---- --------
Total Securities - Available For Sale $210,575 $1,065 $221 $211,419
======== ====== ==== ========
HELD TO MATURITY
Obligations of U.S. Government Agencies $100 $100
Obligations of States and Political
Subdivisions 48,895 $622 $3 49,514
Mortgage-Backed Securities 395 4 399
------- ---- -- -------
Total Securities - Held To Maturity $49,390 $626 $3 $50,013
======= ==== == =======
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1999.
Amortized Gross Gross Estimated
December 31, 1999 (In thousands) Cost Unrealized Gains Unrealized Losses Fair Value
-------------------------------- ------ ---------------- ----------------- ----------
AVAILABLE FOR SALE
U.S. Treasury Securities $3,759 $11 $3,748
Obligations of U.S. Government Agencies 76,935 938 75,997
Obligations of States and Political
Subdivisions 22,040 $6 894 21,152
Mortgage-Backed Securities 51,710 5 826 50,889
Corporate Debt 12,252 283 11,969
Equity Securities 4,189 4,189
-------- --- ------ --------
Total Securities - Available For Sale $170,885 $11 $2,952 $167,944
======== === ====== ========
HELD TO MATURITY
Obligations of U.S. Government Agencies $2,600 $13 $2,587
Obligations of States and Political
Subdivisions 58,562 $192 448 58,306
Mortgage-Backed Securities 734 14 5 743
------- ---- ---- -------
Total Securities - Held To Maturity $61,896 $206 $466 $61,636
======= ==== ==== =======
The amortized cost and estimated fair value of the securities portfolio at
December 31, 2000, by contractual maturity, are shown below. The summary is
divided into available for sale and held to maturity securities. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Equity securities in the available for sale portfolio consist
primarily of Federal Home Loan Bank ("FHLB") stock and investments in unrelated
financial institution stocks, which have no stated maturity and are not included
in the maturity schedule that follows.
Available For Sale Held To Maturity
Amortized Estimated Amortized Estimated
December 31, 2000 (In thousands) Cost Fair Value Cost Fair Value
-------------------------------- ------ ---------- ------ ----------
Due in One Year or Less $71,631 $71,636 $11,172 $11,193
Due After One Year Through Five Years 53,429 53,388 21,218 21,467
Due After Five Years Through Ten Years 65,591 65,939 16,725 17,075
Due After Ten Years 12,871 12,969 275 278
-------- -------- ------- -------
Total $203,522 $203,932 $49,390 $50,013
======== ======== ======= =======
Gross gains of approximately $75,000 and $100,000 for 1999 and 1998,
respectively, were realized on the sale of investment securities. Gross losses
of approximately $26,000 and $40,000 were realized during 1999 and 1998,
respectively. There were no gross gains or losses realized on the sale of
investment securities during 2000.
Investment securities with a book value of $195,217,000 and $157,725,000 at
December 31, 2000 and 1999 were pledged to secure public and trust deposits,
repurchase agreements, and for other purposes.
3. LOANS
Major classifications of loans are summarized as follows.
December 31, (In thousands) 2000 1999
--------------------------- ---- ----
Commercial, Financial, and Agricultural $105,247 $105,064
Real Estate - Construction 40,993 38,471
Real Estate - Mortgage 425,555 390,598
Installment Loans 77,703 78,451
Lease Financing 39,669 37,100
------- -------
Total Loans 689,167 649,684
Less Unearned Income (5,818) (6,121)
------- -------
Total Loans, Net of Unearned Income $683,349 $643,563
======= =======
Loans to directors, executive officers and 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 $14,641,000 and $15,808,000
at December 31, 2000 and 1999, respectively. Such loans were made in the normal
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers and did not involve more than the normal risk of collectability.
An analysis of the activity with respect to these loans follows.
(In thousands) Amount
-------------- ------
Balance, December 31, 1999 $15,808
New loans 7,174
Repayments (6,117)
Loans no longer meeting disclosure requirements and
other adjustments (2,224)
-------
Balance, December 31, 2000 $14,641
=======
4. ALLOWANCE FOR LOAN LOSSES
The Company's recorded investment in impaired loans, as defined in SFAS No. 114,
was $2,138,000 at December 31, 2000 and $2,975,000 at December 31, 1999. Of
those amounts, $0 and $1,252,000, respectively, represent loans for which an
allowance for loan losses, in the amounts of $0 and $874,000, has been
established. For the years ended December 31, 2000 and 1999, the recorded
investment in impaired loans averaged $3,891,000 and $2,463,000, respectively.
Interest income recognized on impaired loans totaled $34,000, $331,000, and
$103,000 for the years 2000, 1999, and 1998, 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 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) 2000 1999 1998
-------------------------------------- ---- ---- ----
Balance, Beginning of Year $9,659 $9,048 $9,114
Provisions for Loan Losses 2,472 2,863 1,134
Recoveries 777 690 1,072
Loans Charged Off (2,659) (2,942) (2,272)
------- ------ ------
Balance, End of Year $10,249 $9,659 $9,048
======= ====== ======
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following.
December 31, (In thousands) 2000 1999
--------------------------- ---- ----
Land, Buildings, and Leasehold Improvements $30,895 $30,236
Furniture and Equipment 14,694 12,676
------ ------
Total Premises and Equipment 45,589 42,912
Less Accumulated Depreciation and Amortization (20,673) (18,503)
------- -------
Premises and Equipment, Net $24,916 $24,409
======= =======
Depreciation and amortization of premises and equipment was $2,289,000,
$2,430,000, and $2,230,000 in 2000, 1999, and 1998, respectively.
6. DEPOSIT LIABILITIES
Time deposits of $100,000 or more at December 31, 2000 and 1999 were $73,615,000
and $62,683,000, respectively.
At December 31, 2000, the scheduled maturities of time deposits were as follows.
(In thousands) Amount
-------------- ------
2001 $207,353
2002 88,871
2003 56,284
2004 4,808
2005 4,221
Thereafter 1,328
--------
Total $362,865
========
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS
Securities sold under agreements to repurchase represent borrowings by the
Company which generally mature one business day following the date of the
transaction. Information pertaining to such borrowings is as follows.
December 31, (Dollars in thousands) 2000 1999
----------------------------------- ---- ----
Average Balance During the Year $52,773 $41,741
Average Interest Rate During the Year 5.91% 4.61%
Maximum Month End Balance During the Year $90,004 $100,588
Other borrowed funds consist primarily of advances to the subsidiary banks from
the Federal Home Loan Bank of Cincinnati. Such borrowings were $9,843,000 and
$2,726,000 at December 31, 2000 and 1999, respectively. The weighted average
interest rate on FHLB advances was 6.90% and 7.36% at December 31, 2000 and
1999, respectively. The subsidiary banks pledge FHLB stock and extend a blanket
pledge of certain 1-4 family first mortgage loans as collateral for these
advances. The aggregate balance of the pledged loans must equal 125% of the
outstanding advances.
Maturities of long term borrowings at December 31, 2000 are as follows.
(In thousands) Amount
-------------- ------
2001 $7,473
2002 1,557
2003 525
2004 197
2005 197
Thereafter 552
-------
Total $10,501
=======
8. INCOME TAXES
The components of income tax expense are as follows.
December 31, (In thousands) 2000 1999 1998
--------------------------- ---- ---- ----
Currently Payable $5,660 $5,227 $5,418
Deferred Income Taxes (161) (324) (131)
----- ----- -----
Total Applicable to Operations 5,499 4,903 5,287
Charged to Components of Shareholders' Equity:
Net Unrealized Securities Gains 1,286 (1,190) 139
------ ------ ------
Total Income Taxes $6,785 $3,713 $5,426
====== ====== ======
An analysis of the difference between the effective income tax rates and the
statutory federal income tax rate follows.
December 31, 2000 1999 1998
------------ ---- ---- ----
Federal Statutory Rate 35.0% 35.0% 35.0%
Changes From Statutory Rates Resulting From:
Tax Exempt Interest (7.2) (8.6) (7.7)
Nondeductible Interest To Carry Municipal .9 1.0 .9
Obligations
Amortization of Intangibles .8 .9 .9
Low Income Housing Tax Credits (1.7) (2.1) (1.0)
Other, Net (.1) (.2) (1.0)
---- ---- ----
Effective Tax Rate 27.7% 26.0% 27.1%
==== ==== ====
The tax effects of the significant temporary differences which comprise deferred
tax assets and liabilities at December 31, 2000 and 1999 follows.
December 31, (In thousands) 2000 1999
--------------------------- ---- ----
ASSETS
Allowance for loan losses $3,587 $3,381
Deferred Directors' Fees 165 153
Post Retirement Benefit Obligations 625 586
Stock Options 1,108 808
Self-funded Insurance 89 81
Investment Securities 712
----- -----
Total Deferred Tax Assets 5,574 5,721
LIABILITIES
Depreciation 1,366 1,403
Investment Securities 694
Deferred Loan Fees 1,090 1,079
Lease Financing Operations 2,003 1,852
Other 165 139
----- -----
Total Deferred Tax Liabilities 5,318 4,473
----- ------
Net Deferred Tax Asset $256 $1,248
==== ======
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences at December 31, 2000.
9. 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. There were no cash or stock
contributions to the plan in each of the years in the three-year period ended
December 31, 2000.
The Company has also established a profit-sharing 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 plan expense for 2000, 1999, and 1998 was $915,000,
$842,000, and $893,000, respectively.
10. COMMON STOCK OPTIONS
In 1997, the Company's Board of Directors approved a nonqualified stock option
plan which provides for granting of stock options to key employees and officers
of the Company. The plan was subsequently ratified by the Company's shareholders
at its annual shareholders' meeting held on May 12, 1998, the measurement date
of the plan. All stock options are awarded at a price equal to the fair market
value of the Company's common stock at the date the options are granted. The
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, since options were
granted during 1997 at the fair market value of the Company's stock on the grant
date, and the measurement date occurred during 1998, the Company recognizes
noncash compensation expense based on the intrinsic value of the stock options
measured on the date of shareholder ratification of the plan. The amount of
noncash compensation expense is being amortized over the vesting period of the
options. The amount of such expense recorded in 2000, 1999 and 1998, net of tax,
was $629,000, $724,000 and $918,000, respectively. At December 31, 2000, the
schedule of approximate noncash compensation expense related to the Company's
stock option plan, net of tax and unadjusted for future forfeitures, is shown in
the table below.
Year (In thousands) Amount
------------------- ------
2001 $628
2002 534
2003 294
2004 143
------
Total $1,599
======
Had compensation expense been determined under the fair value method described
in SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
income and income per common share would have been as shown in the table below.
December 31, (In thousands, except per share data) 2000 1999 1998
-------------------------------------------------- ---- ---- ----
NET INCOME
As Reported $14,380 $13,930 $14,247
Proforma 14,341 13,884 14,189
NET INCOME PER COMMON SHARE
Basic, As Reported $1.97 $1.86 $1.89
Basic, Proforma 1.96 1.86 1.88
Diluted, As Reported 1.97 1.86 1.89
Diluted, Proforma 1.96 1.86 1.88
The fair value of the options granted are estimated as of the measurement date
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2000 and 1997, respectively: dividend yield of
3.12% and 3.18%; expected volatility of 29.6% and 23.4%; risk free interest rate
of 6.71% and 5.75%; and expected life of seven years for both grants. The
weighted average fair value of options granted during 2000 and 1997 was $9.25
and $16.11 per share, respectively.
The plan provides for the granting of options to purchase up to 450,000 shares
of the Company's common stock at a price equal to the fair market value of the
Company's common stock on the date the option is granted. The term of the
options expires after ten years from the date on which the options are granted.
Options granted under the plan vest ratably over various time periods ranging
from four to seven years. All options granted must be held for a minimum of one
year before they can be exercised. Forfeited options are available for the
granting of additional stock options under the plan.
A summary of the status of the Company's stock option plan as of December 31,
2000, 1999, and 1998 and changes during the years ended on those dates is
presented below.
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at January 1 371,446 $24.50 394,136 $24.50 450,000 $24.50
Granted 54,000 29.75
Forfeited (3,429) 27.56 (14,337) 24.50 (41,382) 24.50
Exercised (12,174) 24.50 (8,353) 24.50 (14,482) 24.50
------- ------ ------- ------ ------- ------
Outstanding at December 31 409,843 $25.17 371,446 $24.50 394,136 $24.50
======= ====== ======= ====== ======= ======
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Exercisable 175,572 $24.50 123,839 $24.50 63,356 $24.50
The exercise price range of outstanding options at December 31, 2000 was $24.50
to $29.75 and the weighted average contractual life was 7.03 years.
11. 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. The plan is unfunded.
The following schedules set forth a reconciliation of the changes in the plan's
benefit obligation and funded status for the periods ended December 31, 2000 and
1999.
(In thousands) 2000 1999
-------------- ---- ----
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at Beginning of Year $2,630 $2,535
Service Cost 2 2
Interest Cost 190 165
Actuarial Loss 264 94
Benefit Payments (211) (166)
------ ------
Obligation at End of Year $2,875 $2,630
====== ======
FUNDED STATUS $(2,875) $(2,630)
Unrecognized Transition Obligation 1,218 1,319
Unrecognized Prior Service Cost 339 382
Unrecognized Gain (431) (726)
------- -------
Accrued Postretirement Benefit Costs $(1,749) $(1,655)
======= =======
The following table provides disclosure of the net periodic benefit cost as of
December 31.
(In thousands) 2000 1999
-------------- ---- ----
Service Cost $2 $2
Interest Cost 190 165
Amortization of Transition Obligation 101 102
Amortization of Prior Service Cost 43 42
Amortization of Net Gain (30) (39)
---- ----
Net Periodic Benefit Cost $306 $272
==== ====
Major Assumptions:
Discount Rate 7.25% 7.25%
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. For measurement purposes, a 7% annual rate
of increase in the per capita cost of covered health care benefits was assumed.
The rate was assumed to decrease gradually to 5% by 2003 and remain at that
level thereafter. A 1% change in the assumed health care cost trend rates would
have the following effects:
(In thousands) 1% Increase 1% Decrease
-------------- ----------- -----------
Effect on Total of Service and Interest Cost
Components of Net Periodic Postretirement
Health Care Benefit Cost $19 $(17)
12. 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.
13. 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 were $117,890,000 and $134,378,000 at December 31, 2000 and 1999,
respectively. 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, premises 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 issuing letters of credit is essentially the same as
that received when extending credit to customers. The Company had approximately
$6,460,000 and $4,421,000 in irrevocable letters of credit outstanding at
December 31, 2000 and 1999, respectively.
14. 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.
15. CONTINGENCIES
As of December 31, 2000, there were various pending legal actions and
proceedings against the Company arising from the normal course of business and
in which claims for damages are asserted. Management, after discussion with
legal counsel, believes that these actions are without merit and that the
ultimate liability resulting from these legal actions and proceedings, if any,
will not have a material adverse effect upon the consolidated financial
statements of the Company.
16. REGULATORY MATTERS
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, 2000, combined retained earnings of the subsidiary
banks were approximately $52,948,000 of which $18,726,000 was available for the
payment of dividends in 2001 without obtaining prior approval from bank
regulatory agencies.
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 reserve requirement was $7,721,000 and $8,333,000 at December 31,
2000 and 1999, respectively.
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements will initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the banks must meet specific capital guidelines that involve quantitative
measures of the banks' assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. The Company and its
subsidiary banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary banks to maintain minimum amounts and
ratios (set forth in the tables below) of total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I capital
to average assets (as defined). The Company and each of the subsidiary banks
meet all capital adequacy requirements to which they are subject as of December
31, 2000.
As of December 31, 2000, the most recent notification from the FDIC categorized
the banks as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the tables. There are no conditions or events since that
notification that management believes have changed the institutions' category.
The banks' actual capital amounts and ratios are also presented in the following
tables.
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31, 2000 (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
---------------------------------------- ------ ----- ------ ----- ------ -----
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $124,580 16.66% $29,917 4.00%
Farmers Bank & Capital Trust Co. 43,988 13.98 12,587 4.00 $18,880 6.00%
Farmers Bank and Trust Company 13,512 12.97 4,166 4.00 6,249 6.00
Lawrenceburg National Bank 9,912 12.56 3,157 4.00 4,736 6.00
First Citizens Bank 11,127 11.94 3,729 4.00 5,593 6.00
United Bank & Trust Co. 12,478 13.30 3,754 4.00 5,631 6.00
Kentucky Banking Centers, Inc. 7,141 10.81 2,641 4.00 3,962 6.00
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $134,069 17.93% $59,834 8.00%
Farmers Bank & Capital Trust Co. 47,922 15.23 25,173 8.00 $31,466 10.00%
Farmers Bank and Trust Company 14,816 14.23 8,332 8.00 10,416 10.00
Lawrenceburg National Bank 10,901 13.81 6,315 8.00 7,893 10.00
First Citizens Bank 12,294 13.19 7,457 8.00 9,322 10.00
United Bank & Trust Co. 13,653 14.55 7,508 8.00 9,385 10.00
Kentucky Banking Centers, Inc. 7,968 12.07 5,283 8.00 6,603 10.00
TIER 1 CAPITAL (TO AVERAGE ASSETS)
Consolidated $124,580 12.13% $41,097 4.00%
Farmers Bank & Capital Trust Co. 43,988 9.56 18,398 4.00 $22,998 5.00%
Farmers Bank and Trust Company 13,512 9.51 5,685 4.00 7,106 5.00
Lawrenceburg National Bank 9,912 9.18 4,319 4.00 5,399 5.00
First Citizens Bank 11,127 8.64 5,151 4.00 6,439 5.00
United Bank & Trust Co. 12,478 9.50 5,251 4.00 6,564 5.00
Kentucky Banking Centers, Inc. 7,141 8.53 3,348 4.00 4,185 5.00
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31, 1999 (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
---------------------------------------- ------ ----- ------ ----- ------ -----
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $126,229 18.63% $27,097 4.00%
Farmers Bank & Capital Trust Co. 43,597 15.48 11,268 4.00 $16,903 6.00%
Farmers Bank and Trust Company 11,969 13.02 3,678 4.00 5,517 6.00
Lawrenceburg National Bank 9,688 13.35 2,903 4.00 4,355 6.00
First Citizens Bank 11,565 13.30 3,478 4.00 5,217 6.00
United Bank & Trust Co. 11,760 13.89 3,387 4.00 5,081 6.00
Kentucky Banking Centers, Inc. 7,455 11.40 2,615 4.00 3,923 6.00
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated $134,712 19.89% $54,194 8.00%
Farmers Bank & Capital Trust Co. 47,122 16.73 22,537 8.00 $28,171 10.00%
Farmers Bank and Trust Company 13,121 14.27 7,356 8.00 9,196 10.00
Lawrenceburg National Bank 10,597 14.60 5,806 8.00 7,258 10.00
First Citizens Bank 12,654 14.55 6,956 8.00 8,695 10.00
United Bank & Trust Co. 12,821 15.14 6,775 8.00 8,469 10.00
Kentucky Banking Centers, Inc. 8,273 12.65 5,230 8.00 6,538 10.00
TIER 1 CAPITAL (TO AVERAGE ASSETS)
Consolidated $126,229 12.77% $39,529 4.00%
Farmers Bank & Capital Trust Co. 43,597 10.05 17,355 4.00 $21,964 5.00%
Farmers Bank and Trust Company 11,969 8.99 5,327 4.00 6,658 5.00
Lawrenceburg National Bank 9,688 9.31 4,163 4.00 5,203 5.00
First Citizens Bank 11,565 9.18 5,039 4.00 6,298 5.00
United Bank & Trust Co. 11,760 9.32 5,048 4.00 6,310 5.00
Kentucky Banking Centers, Inc. 7,455 8.67 3,438 4.00 4,297 5.00
17. 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.
Additionally, 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.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments. This Statement requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet for which it is practicable to estimate that value. The estimated
fair value amounts have been determined by the Company using available market
information and present value or other valuation techniques. These derived fair
values are subjective in nature, involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision. SFAS
No. 107 excludes certain financial instruments and all nonfinancial instruments
from the disclosure requirements. Accordingly, the aggregate fair value amounts
presented are not intended to represent the underlying value of the Company.
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, fair values are based on quoted
market prices or dealer quotes. For other securities, 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.
LOANS RECEIVABLE
The fair value of loans is estimated by discounting the future cash
flows using current discount rates at which similar loans would be
made to borrowers with similar credit ratings and for the same
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 fair value of fixed maturity certificates of deposit is estimated
by discounting the future cash flows using the 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.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED
FUNDS
The fair value of securities sold under agreements to repurchase and
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.
December 31, 2000 1999
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
-------------- ------ ----- ------ -----
ASSETS
Cash and Cash Equivalents $229,871 $229,871 $135,360 $135,360
Investment Securities:
Available for Sale 211,419 211,419 167,944 167,944
Held to Maturity 49,390 50,013 61,896 61,636
Loans, Net 673,100 670,676 633,904 629,661
LIABILITIES
Deposits 969,197 969,887 862,220 862,750
Securities Sold Under Agreements to
Repurchase and Other Borrowed Funds 101,682 101,693 45,639 45,477
19. PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, (In thousands) 2000 1999
--------------------------- ---- ----
ASSETS
Cash on Deposit with Subsidiaries $24,386 $31,846
Interest Bearing Deposits in Other Banks 100
Investment Securities Available for Sale 2,935
Investment in Subsidiaries 99,631 95,856
Other Assets 1,793 517
-------- --------
Total Assets $128,745 $128,319
======== ========
LIABILITIES
Dividends Payable $2,155 $2,162
Other Liabilities 1,129 1,051
----- -----
Total Liabilities 3,284 3,213
----- -----
SHAREHOLDERS' EQUITY
Common Stock 1,004 1,002
Capital Surplus 13,634 12,370
Retained Earnings 131,021 125,173
Treasury stock (20,755) (11,498)
Accumulated Other Comprehensive Income (Loss) 557 (1,941)
------- -------
Total Shareholders' Equity 125,461 125,106
------- -------
Total Liabilities and Shareholders' Equity $128,745 $128,319
======= =======
CONDENSED STATEMENTS OF INCOME
December 31, (In thousands) 2000 1999 1998
--------------------------- ---- ---- ----
INCOME
Dividends from Subsidiaries $14,363 $10,382 $5,274
Interest Income 91 21 54
Other Dividend Income 86
Other Income 954 912 946
------ ------ -----
Total Income 15,494 11,315 6,274
EXPENSE
Other Expense 2,503 2,417 2,424
----- ----- -----
Total Expense 2,503 2,417 2,424
----- ----- -----
Income Before Income Tax Benefit and Equity in
Undistributed Income of Subsidiaries 12,991 8,898 3,850
Income Tax Benefit 503 537 637
------ ----- -----
Income Before Equity in Undistributed Income of
Subsidiaries 13,494 9,435 4,487
Equity in Undistributed Income of Subsidiaries 886 4,495 9,760
------- ------- -------
Net Income $14,380 $13,930 $14,247
======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS
December 31, (In thousands) 2000 1999 1998
--------------------------- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $14,380 $13,930 $14,247
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Equity in Undistributed Income of Subsidiaries (886) (4,495) (9,760)
Noncash Compensation Expense 293 298 410
Change in Other Assets and Liabilities, Net (1,270) 6 (279)
Deferred Income Tax (Benefit) Expense (78) (22) 144
------ ----- ------
Net Cash Provided By Operating Activities 12,439 9,717 4,762
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Investment Securities Available for Sale (2,502)
-----
Net Cash Used in Investing Activities (2,502)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid (8,539) (8,401) (7,256)
Purchase of Common Stock (9,257) (3,177) (1,856)
Stock Options Exercised 299 205 232
------ ------ -----
Net Cash Used in Financing Activities (17,497) (11,373) (8,880)
------ ------ -----
Net Decrease in Cash and Cash Equivalents (7,560) (1,656) (4,118)
Cash and Cash Equivalents at Beginning of Year 31,946 33,602 37,720
------- ------- -------
Cash and Cash Equivalents at End of Year $24,386 $31,946 $33,602
======= ======= =======
SUPPLEMENTAL DISCLOSURES
Cash Paid During the Year for Income Taxes $5,450 $6,025 $5,185
Cash Dividend Declared and Unpaid 2,155 2,162 2,113
20. QUARTERLY FINANCIAL DATA
Unaudited (In thousands, except per share data)
Quarters Ended 2000 March 31 June 30 Sept. 30 Dec. 31
-------------------- -------- ------- -------- -------
Interest Income $17,940 $18,467 $19,146 $19,928
Interest Expense 7,081 7,789 8,370 9,296
------ ------ ------ ------
Net Interest Income 10,859 10,678 10,776 10,632
Provision for Loan Losses 260 1,167 460 585
------ ----- ------ ------
Net Interest Income After Provision for
Loan Losses 10,599 9,511 10,316 10,047
Other Income 3,064 3,268 3,146 2,965
Other Expense 8,282 8,507 8,153 8,095
----- ----- ----- -----
Income Before Income Taxes 5,381 4,272 5,309 4,917
Income Tax Expense 1,383 1,320 1,522 1,274
------ ------ ------ ------
Net Income $3,998 $2,952 $3,787 $3,643
====== ====== ====== ======
Net Income per Common Share, Basic and Diluted $0.54 $0.40 $0.52 $0.51
Weighted Average Shares Outstanding, Basic 7,422 7,346 7,263 7,188
Weighted Average Shares Outstanding, Diluted 7,423 7,348 7,279 7,215
Unaudited (In thousands, except per share data)
Quarters Ended 1999 March 31 June 30 Sept. 30 Dec. 31
-------------------- -------- ------- -------- -------
Interest Income $17,032 $17,090 $17,349 $17,563
Interest Expense 6,842 6,705 6,698 6,939
------ ------ ------ ------
Net Interest Income 10,190 10,385 10,651 10,624
Provision for Loan Losses 194 441 506 1,722
------ ------ ------ ------
Net Interest Income After Provision for
Loan Losses 9,996 9,944 10,145 8,902
Other Income 2,892 3,113 2,950 3,328
Other Expense 8,011 8,219 7,906 8,301
----- ----- ----- -----
Income Before Income Taxes 4,877 4,838 5,189 3,929
Income Tax Expense 1,374 1,170 1,421 938
------ ------ ------ ------
Net Income $3,503 $3,668 $3,768 $2,991
====== ====== ====== ======
Net Income per Common Share, Basic and Diluted $0.47 $0.49 $0.50 $0.40
Weighted Average Shares Outstanding, Basic 7,514 7,488 7,458 7,455
Weighted Average Shares Outstanding, Diluted 7,514 7,488 7,475 7,456
SHAREHOLDER INFORMATION
CORPORATE ADDRESS
The headquarters of Farmers Capital Bank Corporation is located at:
202 West Main Street
Frankfort, Kentucky 40601
DIRECT CORRESPONDENCE TO:
Farmers Capital Bank Corporation
P.O. Box 309
Frankfort, Kentucky 40602-0309
Phone: (502) 227-1600
www.farmerscapital.com
ANNUAL MEETING
The annual meeting of shareholders of Farmers Capital Bank Corporation will be
held Tuesday, May 8, 2001 at 11:00 a.m. at the main office of Farmers Bank &
Capital Trust Co., Frankfort, Kentucky.
FORM 10-K
For a copy of Farmers Capital Bank Corporation's Annual Report on Form 10-K
filed with the Securities and Exchange Commission, please write:
James H. Childers, Secretary
Farmers Capital Bank Corporation
P.O. Box 309
Frankfort, Kentucky 40602-0309
STOCK INFORMATION
Farmers Capital Bank Corporation's stock is traded on the National Association
of Securities Dealers Automated Quotation System (NASDAQ) SmallCap Market tier
of The NASDAQ Stock Market, with sales prices reported under the symbol: FFKT.
NASDAQ MARKET MAKERS
J.J.B. Hilliard, W.L. Lyons, Inc.
(502) 588-8400
(800) 444-1854
Knight Securities LP
(800) 302-9197
Morgan, Keegan and Company
(800) 260-0280
The Transfer Agent and Registrar for Farmers Capital Bank Corporation is the
Farmers Bank & Capital Trust Co.
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, 2000 and the jurisdiction of incorporation in
which each subsidiary was incorporated or organized.
Percentage of
Voting
Jurisdiction Stock held by
Subsidiaries of the Registrant of Incorporation Registrant
------------------------------ ---------------- --------------
Farmers Bank & Capital Trust Co. Kentucky 100%
United Bank & Trust Company Kentucky 100%
First Citizens Bank Kentucky 100%
Lawrenceburg National Bank Kentucky 100%
Farmers Bank and Trust Company Kentucky 100%
Kentucky Banking Centers, Inc. Kentucky 100%
FCB Services, Incorporated Kentucky 100%
Kentucky General Life Insurance Company, Inc. Kentucky 1
Farmers Capital Insurance Corporation 2 Kentucky
Farmers Fidelity Insurance Agency, LLP 3 Kentucky
Farmers Bank Realty Co. 2 Kentucky
Leasing One Corporation 2 Kentucky
E Properties, Inc. 2 Kentucky
1 None Issued
2 A wholly owned subsidiary of Farmers Bank & Capital Trust Co.
3 A fifty (50%) percent owned LLP of Farmers Capital Insurance Corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Farmers Capital Bank Corporation
We consent to incorporation by reference in the registration statement (No.
333-63037) on Form S-8 of Farmers Capital Bank Corporation of our report dated
January 16, 2001, relating to the consolidated balance sheets of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for each of the years in the three year
period ended December 31, 2000, which report appears in the December 31, 2000
annual report on Form 10-K of Farmers Capital Bank Corporation.
/s/ KPMG LLP
Louisville, Kentucky
March 26, 2001